Nov 07, 2016

Diversified Tube Investments of India Ltd

Results Review Tube Investments of India Ltd

Bloomberg Code: TI IN

India Research - Stock Broking

HOLD
Corporate Structure is Restructured; Overall Positive Recommendation (Rs.)
CMP 615
Performance During H1FY17
Target Price 653
Restructuring of corporate structure: Tube Investments of India (TIIL) board has
Previous Target Price 653
approved demerger of manufacturing and financial services businesses into two different
entities. The carved out manufacturing undertakings shall be brought under TI Financial Upside (%) 6.2
Holdings ltd (TIFHL) and residual financial services businesses to remain under TIIL. Stock Information
The ratio for demerger under consideration stands at one share of TIFHL of face value of Mkt Cap (Rs.mn/US$ mn) 115227 / 1727
Rs.1 for one share held in TIIL of Rs.2 each. TIILs face value post demerger shall stand 52-wk High/Low (Rs.) 685 / 349
reduced to Rs.1 each and the holding pattern of TIFHL shall be a mirror image of TIIL. 3M Avg. daily volume (mn) 0.12
Overall positive performance during H1FY17: TI standalone revenue, EBITDA Beta (x) 0.61
and PAT reach to Rs.19,561mn, Rs.1,063mn and Rs.962mn which are higher by 4.0%, Sensex/Nifty 27458 / 8497
16.9% and 122.5% respectively. Higher other income, lower interest expenses and tax O/S Shares(mn) 187.3
expenses aided net profit expansion during H1FY17. In terms of margins, EBITDA, EBIT Face Value (Rs.) 2.0
and PAT margins expanded by 60bps, 184bps and 262bps to 5.4%, 9.0% and 4.9% Shareholding Pattern (%)
respectively during H1FY17. Promoters 49.9
Segmental performance a mixed bag during H1FY17: Cycles segment sales FIIs 13.7
and EBIT to Rs.6,977mn and Rs.286mn which are lower by 10.5% and 42.4% than a DIIs 13.4
year ago levels while EBIT margin fell by 227bps to 4.1% during H1FY17. Engineering Others 23.0
products revenue and EBIT grew by 12.0% and 93.7% to Rs.10,228mn and Rs.835mn
during H1FY17 with EBIT margin expansion to the extent of 345bps to 8.2% during the Stock Performance (%)
same period. Metal formed products revenues and EBIT grew by 14.6% and 22.4% to 1M 3M 6M 12M
Rs.5,650mn and Rs.470mn respectively during H1FY17. Absolute 0.2 9.4 44.0 64.6
Relative to Sensex 2.4 11.9 32.3 57.5
Earnings estimates for FY17E and FY18E revised upwards: We revise our
Source: Bloomberg
standalone revenue, EBITDA and PAT to Rs.42,716Mn, Rs.3,909Mn and Rs.1,472Mn
respectively for FY17E; and for FY18E, the same are revised to Rs.49,489Mn, Relative Performance*
Rs.4,581 Mn, and Rs.1,907Mn respectively. 180

155
Valuation and Outlook 130
We maintain our positive view on Tube Investments of India for a target price of 105
Rs.653 on SoTP basis with standalone business valued at Rs.235 based on 23x 80
(11 year average P/E) of FY18E EPS of Rs.10.2, Chola investments valued at
Mar-16
Nov-15
Dec-15

Jul-16
Aug-16
Apr-16

Oct-16
Jan-16

Jun-16
May-16
Feb-16

Sep-16

Rs.257/share, Chola MS valued at Rs.141/share and all other investments valued

at investment value of Rs.20/share aggregating to per share value of Rs.653 Tube Investments Sensex
representing an upside potential of 6.2%. Source: Bloomberg; *Index 100

Exhibit 1: Valuation Summary

YE Mar-Standalone (Rs. Mn) FY14 FY15 FY16 FY17E FY18E
Net Sales 35256 38278 38781 42716 49489 Earnings Revision (%)
EBITDA 3015 3193 3594 3953 4581 YE Mar FY17E FY18E
LL LL
EBITDA Margin (%) 8.6 8.3 9.3 9.3 9.3 Sales (%) 1.5 6.1
LL LL
Adj. Net Profit* 941 869 930 1472 1907 EBITDA (%) 4.6 4.0

EPS (Rs.)@ 5.0 4.6 38.9 7.9 10.2 Adj. PAT (%) LL (4.5) LL(0.8)
Source: Karvy Research
RoE (%)@ 7.8 6.8 37.6 10.2 12.3
PE (x) #
35.8 79.9 62.9 78.3 60.4
Source: Company, Karvy Research; #Represents multiples for FY14, FY15 & FY16 are based on historic market price Analyst Contact
*Excluding exceptional items, @-including exceptional items.
De Arul Kaarthick
For private circulation only. For important information about Karvys rating system and other disclosures refer
to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>, 040 - 3321 6280
Thomson Publishers & Reuters arul.kaarthick@karvy.com
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Tube Investments of India Ltd

Overall positive performance during H1FY17:

TI standalone revenue, EBITDA and PAT reach to Rs.19,561mn, Rs.1,063mn and Rs.962mn which are higher by 4.0%, 16.9%
and 122.5% respectively. In terms of margins, EBITDA, EBIT and PAT margins expanded by 60bps, 184bps and 262bps to
5.4%, 9.0% and 4.9% respectively during H1FY17.
On quarterly basis, revenue, EBITDA and PAT reach to Rs.9,321mn, Rs.490mn and Rs.538mn respectively which are higher
by 1.2% in terms of revenue, 0.6% lower by EBITDA and higher again by 113.3% in terms of PAT during Q2FY17 on a YoY
comparison while on sequential basis revenue and EBITDA dropped by 9.0% and 14.6% respectively whereas PAT grew by
26.9%.
In terms of margin, EBITDA, EBIT and PAT margins reach to 5.3%, 9.4% and 5.8% respectively during Q2FY17. EBITDA
margin fell by 10bps and 35bps on YoY basis and QoQ basis respectively whereas EBIT and PAT grew by 151bps and 303bps
respectively on YoY comparison and the same grew by 79bps and 163bps on QoQ comparison.
Higher other income, lower interest expenses and tax expenses aided net profit expansion during H1FY17.

Exhibit 2: Overall positive performance during H1FY17

YE Mar - Standalone (Rs. Mn)* Q2FY17 Q2FY16 YoY (%) Q1FY17 QoQ (%) H1FY17 H1FY16 YoY (%) FY16*

Turnover (net) 9321 9211 1.2 10240 (9.0) 19561 18805 4.0 37535

Op. Expenditure 8831 8718 1.3 9666 (8.6) 18497 17895 3.4 35730

EBITDA 490 493 (0.6) 573 (14.6) 1063 910 16.9 1805

Depreciation 294 272 8.1 279 5.4 573 539 6.4 1106

Interest 167 355 (52.9) 245 (31.8) 413 702 (41.2) 1353

Other Income 681 506 34.6 587 15.9 1268 972 30.4 2058

PBT 709 372 90.9 636 11.5 1345 642 109.6 1404

Exceptional items 0 0 NM 0 NM 0 0 NM 7850

Tax (net) 171 119 43.4 212 (19.4) 383 210 82.9 1937

PAT 538 252 113.3 424 26.9 962 432 122.5 7316

EBITDA Margin (%) 5.3 5.4 (10) bps 5.6 (35) bps 5.4 4.8 60 bps 4.8

EBIT Margin (%) 9.4 7.9 151 bps 8.6 79 bps 9.0 7.1 184 bps 7.3

PAT Margin (%) 5.8 2.7 303 bps 4.1 163 bps 4.9 2.3 262 bps 19.5
Source: Company, Karvy Research, * Re-stated IND AS numbers

Quarterly Segmental Revenue Break-up

Exhibit 3: Q2FY17* Exhibit 4: Q2FY16*

Metal
Metal
Formed
Formed Cycles and Products Cycles and
Products Components 23.5% Components
27.3% 24.6%
32.7%

Engineering Engineering
48.1% 43.8%

Source: Company, Karvy Research, *Re-stated IND AS numbers Source: Company, Karvy Research, *Re-stated IND AS numbers

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Segmental performance a mixed bag during H1FY17:

Cycles segment sales and EBIT to Rs.6,977mn and Rs.286mn which are lower by 10.5% and 42.4% than a year ago levels
while EBIT margin fell by 227bps to 4.1% during H1FY17. On quarterly basis, revenue and EBIT reach to Rs.2,699mn and
Rs.56mn during Q2FY17 which is a drop of 23.0% and 72.8% on YoY basis while the same dropped by 36.9% and 75.7% on
QoQ basis. EBIT margin shrunk to 2.1% which again is a drop of 380bps and 331bps on YoY basis and QoQ basis.
Engineering products revenue and EBIT grew by 12.0% and 93.7% to Rs.10,228mn and Rs.835mn during H1FY17 with EBIT
margin expansion to the extent of 345bps to 8.2% during the same period. On quarterly basis, revenue and EBIT reach to
Rs.5,276mn and Rs.427mn during Q2FY17 which are higher by 12.2% and 71.8% on YoY comparison whereas the same
on sequential basis grew by 6.5% and 4.8% respectively. EBIT margin reach to 8.1% during Q2FY17, this is an expansion of
281bps during Q2FY17 on YoY comparison, however a drop of 14bps sequentially.
Metal formed products revenues and EBIT grew by 14.6% and 22.4% to Rs.5,650mn and Rs.470mn respectively during
H1FY17. On quarterly basis, revenue and EBIT reach to Rs.3,001mn and Rs.270mn during Q2FY17 which are higher by 18.8%
and 29.8% on YoY comparison whereas the same sequentially grew by 13.3% and 34.8% respectively. EBIT margin reach to
9.0% which is an expansion by 76bps on YoY basis and 144bps QoQ basis during Q2FY17.
Earnings estimates for FY17E and FY18E revised upwards:
We revise our standalone revenue, EBITDA and PAT to Rs.42,716Mn, Rs.3,909Mn and Rs.1,472Mn respectively for FY17E;
and for FY18E, the same is revised to Rs.49,489Mn, Rs.4,581 Mn, and Rs.1,907Mn respectively.
Off-takes could impact growth going forward: We expect cycles segment to grow to Rs.1,351Mn and Rs.1,485Mn for
FY17E and FY18E respectively which mean a flat growth during FY16-18E. The estimate incorporates 1.2% dip in volumes with
sustained institutional business and 1.2% of realisation growth from speciality cycles.
Strong automotive sector could aid engineering business performance: We expect automotive sector to contribute for
engineering segment performance and also reasonable performance from large dia tubemill. Overall engineering volumes to
grow at a CAGR of 14.1% while the blended realisation are estimated to grow at a CAGR of 6.3% delivering segment sales of
Rs.2,004Mn and Rs.2,395Mn respectively by FY17E and FY18E respectively.
After-market, auto and railways segments to do well: After-market, Chains, doorframes, and fine blanked components are
expected to deliver strong growth on the back of robust auto sector. Railway sections and coaches revival is more than evident.
We expect the auto products to grow at a CAGR of 15.5% during FY16-18E. The overall metal products segment is estimated to
reach to Rs.1,111Mn and Rs.1,272Mn respectively which is a CAGR of 15.5% during FY16-18E.

Exhibit 5: Segmental performance a mixed bag during H1FY17

YE Mar - Standalone (Rs. Mn)* Q2FY17 Q2FY16 YoY(%) Q1FY17 QoQ(%) H1FY17 H1FY16 YoY(%) FY16*
Segment Revenue
Cycles and accessories 2699 3505 (23.0) 4278 (36.9) 6977 7795 (10.5) 14913
Engineering 5276 4702 12.2 4952 6.5 10228 9136 12.0 18216
Metal formed products 3001 2527 18.8 2649 13.3 5650 4930 14.6 10437
Others 3 3 0.0 4 (12.8) 7 4 97.3 16
Total 10979 10737 2.3 11883 (7.6) 22863 21865 4.6 43582

Segment EBIT
Cycles and accessories 56 206 (72.8) 230 (75.7) 286 496 (42.4) 788
Engineering 427 249 71.8 408 4.8 835 431 93.7 945
Metal formed products 270 208 29.8 200 34.8 470 384 22.4 863
Total 753 662 13.7 838 (10.1) 1591 1311 21.3 2596

Segment EBIT Margin (%)

Cycles and accessories 2.1 5.9 (380) bps 5.4 (331) bps 4.1 6.4 (227) bps 5.3
Engineering 8.1 5.3 281 bps 8.2 (14) bps 8.2 4.7 345 bps 5.2
Metal formed products 9.0 8.2 76 bps 7.6 144 bps 8.3 7.8 53 bps 8.3
Total 6.9 6.2 69 bps 7.1 (19) bps 7.0 6.0 96 bps 6.0
Source: Company, Karvy Research, *Re-stated IND AS numbers

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Tube Investments of India Ltd
Quarterly Segmental Break-up
Exhibit 6: Quarterly revenue trend (Rs. Mn) Exhibit 7: Quarterly EBIT trend (Rs. Mn)
12000 900

9000
600
6000
300
3000

0 0

*Q1FY17

*Q2FY17
Q1FY15

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

*Q1FY17

*Q2FY17
Q1FY15

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16
Cycles Engineering Metal Formed Products Cycles Engineering Metal Formed Products
Source: Company, Karvy Research, *Re-stated IND AS numbers Source: Company, Karvy Research, *Re-stated IND AS numbers

Key takeaways from concall

Restructuring of corporate structure:
In terms of businesses, TIFHL business activities would involve manufacturing of tubes, strips, tubular components, bicycle
and fitness products, chains for automobile and industrial applications, roll formed sections and other metal products, industrial
gears, designing and manufacturing of dies.
TIIL business would include financial services business through subsidiaries, joint ventures, associates viz NBFC, insurance
business and risk consultancy business.
Post the demerger, TIFHL shall be re-named as Tube Investments of India (TIIL) with all manufacturing entities under its ambit
and TILL shall be re-named as TI Financial Holdings Ltd (TIFHL) with financial and other services businesses under its ambit.
Pro-forma Balance Sheet for the new entity shall be made available in due course. Nevertheless, large portion of the debt shall
remain with the manufacturing entities and major portion of cash shall move to financial services businesses.

Business update:
Cycles and components: Lower institutional off-take, rains in East and North impacted trade volumes impacted topline, costs
associated with Rajpura plant impacted profit performance further. Management considers following two quarters as tough
though, institutional volumes could kick-in largely mitigating volume drop witnessed during H1FY17. Working capital intensity for
the segment to go up considerably going forward as institutional business for the year shall be loaded in H2FY17E.
Engineering segment: Volumes continued to do well with tubes and steel strips growing by 3.0% and 10.0% on YoY basis
while exports value doubled to Rs.650mn during Q2FY17. Large dia plant continues to operate at EBITDA breakeven levels
though realisations had fallen during Q2FY17. Drop in realisation is largely due to large steel mills focusing on non-oil market.
Management is confident of reaching optimal utilisation with considerable margin profile in serving off-highway demand as
export substitution.
Order book from automotive sector at present remains strong with a string of negative bias in 2W and PV cars segment. Outlook
for exports market remains strong for next two years as the company has spent nearly two to three years working with OEMs for
product approvals in the South-East Asian markets.
Metal products segment: 2W market is showing signs of slowdown; OEM business continues its strong performance.
Doorframes remain model specific and after-market business maintains stability. TI is investing in debottlenecking exercises in
this division.

Exhibit 8: Change in Estimates

FY17E FY18E
YE Mar - Standalone (Rs. Mn)
Revised Earlier Change (%) Revised Earlier Change (%)
Net Sales 42716 42077 1.5 49489 46652 6.1
EBITDA 3953 3780 4.6 4581 4404 4.0
EBITDA Margin (%) 9.3 9.0 27 bps 9.3 9.4 (18) bps
Adj. PAT 1472 1542 (4.5) 1907 1921 (0.8)
EPS (Rs.) 7.9 8.2 (4.6) 10.2 10.3 (0.9)
Source: Karvy Research

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Tube Investments of India Ltd

Standalone Financials

Exhibit 9: Income Statement

YE Mar (Rs. Mn) FY14 FY15 FY16E FY17E FY18E
Revenues 35256 38278 38781 42716 49489
Growth (%) (1.1) 8.6 1.3 10.1 15.9
Operating Expenses 32241 35085 35187 38764 44908
EBITDA 3015 3193 3594 3953 4581
Growth (%) 1.1 5.9 12.6 10.0 15.9
Depreciation & Amortization 843 970 1,071 1,137 1,153
Other Income* 471 711 381 476 501
EBIT* 2644 2934 2905 3291 3929
Interest Expenses 1233 1383 1209 1077 1062
PBT* 1411 1551 1696 2214 2867
Tax* 472 343 568 742 960
Adjusted PAT* 941 869 1128 1472 1907
Growth (%) (6.0) (7.7) 29.8 30.5 29.5
Source: Company, Karvy Research, * Adjusted for exceptional items

Exhibit 10: Balance Sheet

YE Mar (Rs. Mn) FY14 FY15 FY16E FY17E FY18E
Cash & Inventories 303 257 41 245 635
Sundry Debtors 4459 4779 4841 5333 6100
Inventory 3702 4682 4888 5420 6336
Loans & Advances 1315 1276 1440 1445 1513
Investments 15057 15232 14819 14819 14819
Gross Block 14332 17322 19250 21000 10487
Net Block 6943 9043 9872 10485 10631
CWIP 1971 364 364 364 364
Total Assets 33750 35633 36264 38110 40398
Current Liabilities & Provisions 14461 14050 13842 16002 17676
Debt 6380 7811 7933 6633 5970
Other Liabilities 520 567 567 567 567
Total Liabilities 21362 22428 22342 23202 24213
Shareholders Equity 374 374 374 374 374
Reserves & Surplus 12015 12831 13547 14533 15811
Total Networth 12388 13205 13921 14908 16185
Total Networth & Liabilities 33750 35633 36264 38110 40398
Source: Company, Karvy Research

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Exhibit 11: Cash Flow Statement

YE Mar (Rs. Mn) FY14 FY15 FY16E FY17E FY18E
PBT 1412 1551 1696 2214 2867
Depreciation 843 970 1071 1137 1153
Interest 1233 1383 1209 1077 1062
Tax Paid (383) (335) (568) (742) (960)
Inc/dec in Net WC 138 (96) (47) (35) (58)
Other Income (348) (296) (381) (476) (501)
Other non cash items (107) (643) 0 0 0
Cash flow from operating activities 2788 2534 2979 3176 3563
Inc/dec in capital expenditure (1689) (1358) (1900) (1750) (1300)
Inc/dec in investments (570) (174) 0 0 0
Others 399 989 381 476 501
Cash flow from investing activities (1860) (543) (1519) (1274) (799)
Inc/dec in borrowings 663 320 (48) 182 (163)
Issuance of equity 13 25 0 0 0
Dividend paid (378) (392) (412) (486) (629)
Interest paid (1213) (1382) (1209) (1077) (1062)
Others (40) 262 0 0 0
Cash flow from financing activities (955) (1167) (1668) (1381) (1854)
Net change in cash (28) 824 (208) 520 910
Source: Company, Karvy Research

Exhibit 12: Key Ratios

YE Mar FY14 FY15 FY16 FY17E FY18E
EBITDA Margin (%) 8.6 8.3 9.3 9.3 9.3
EBIT Margin (%) 7.5 6.8 7.5 7.7 7.9
Net Profit Margin (%) 2.7 2.3 2.9 3.4 3.9
Dividend Payout ratio (%) 40.2 45.1 36.5 33.0 33.0
Net Debt/Equity (x) 1.1 1.1 0.8 0.8 0.7
@
RoE (%) 7.8 6.8 8.3 10.2 12.3
@
RoCE (%) 5.2 6.9 7.4 8.5 9.7
Source: Company, Karvy research, @-including exceptional items

Exhibit 13: Valuation Parameters

YE Mar FY14 FY15 FY16 FY17E FY18E
EPS (Rs.)# 5.0 4.6 6.0 7.9 10.2
DPS (Rs.) 2.0 2.1 2.2 2.6 3.4
BVPS (Rs.) 66.2 70.6 74.3 79.6 86.4
PE (x)* 35.8 79.9 62.9 78.3 60.4
P/BV (x)* 2.7 5.3 5.1 7.7 7.1
EV/EBITDA (x)* 15.6 26.1 22.8 32.0 27.5
EV/Sales (x)* 1.3 2.2 2.1 3.0 2.5
Source: Company, Karvy research, #Excluding exceptional items,
* FY14, FY15 & FY16 multiples are based on historical prices on year ending

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Tube Investments of India Ltd

Stock Ratings Absolute Returns

Buy : > 15%
Hold : 5-15%
Sell : <5%

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