Date : 20th September, 2012

DENSO INDIA LTD.(DENSO)

Stock Performance Details Background

Current Price : Rs. 46.00**  Denso India Ltd. (DENSO) is engaged in the
Face Value : Rs. 10 per share manufacturing and supply of electrical
52 wk High / Low : Rs. 63.25 / Rs. 43.60 automotive components and caters to the needs
Total Traded Volumes : 204 shares** of Original Equipment Manufacturers (OEMs).
Market Cap : Rs. 97 crore**
 The Company's operational capacities are
Sector : Auto Ancillary – Electrical located in Haridwar, India. Its customers are
Components Maruti Suzuki India Limited (MSIL) and Hero
EPS (FY2012) : Rs. (25.8) per share Honda Motors Limited.
P/E (TTM) : NA (x)^
P/BV (TTM) : 0.96 (x)^  The Company has sold Small Motor Business i.e
Financial Year End : 1st April – 31st March Front/ Rear Wiper, Power Window Motors,
Blower Motors, Electric Fan Motors and Engine
BSE Scrip Name : DENSO
Cooling Modules to DENSO Haryana Private
BSE Scrip Code : 520022 Limited, a DENSO group company, by way of
**as on20th September, 2012; ^ as on June 2012
slump sale.
Shareholding Details – June 2012 The consideration for the sale on a slump sale
basis is Rs. 1,477 million, out of which 90%
Shareholding amount i.e. Rs. 1,329 millions has been received
Particulars on signing the agreement and balance 10% will
Nos. (%) be received on closing date which is scheduled to
Promoter & Promoter Group be in October 2012
2,04,81,625 73.47
Holding
 The Company's Electrical Parts Business for the
Total Institutional Holdings
20,24,827 7.26 four wheeler segment i.e Alternator and Starter
(FIIs & DIIs) and Electrical Parts Business for the two wheeler
Public Holdings 53,73,192 19.27 segment i.e GDI and Magneto constitute the core
Total businesses of the Company.
2,78,79,644 100.00

Strategy Focus

 The company has completed issue and allotment of 4,33,87,048 equity shares of face value Rs 5 each on
conversion of outstanding loan of Rs 144,04,49,995 to the allotees on preferential basis at a price of Rs 33.20
including a premium of Rs 28.20.

 The company recently completed its expansion project at the Mysore plant and commenced commercial
production of niche tyres for four-wheelers, a segment which it was not catering to earlier. This is likely to
diversify its product offerings, thus in turn diversifying the revenue model of the company.

 The Company is proposing to set up a factory at Bangalore to cater to the requirements of two wheelers
manufacturers in southern India and mainly supply to Honda Motorcycle and Scooter India Pvt. Ltd. (HMSI)
which is one of the main customers for the two wheelers products of the Company. The Company is in the
process of taking up suitable premises on lease at Bangalore to set up the Factory.
 The key products in the Electrical parts business like Alternator & Starter and GDI & Magneto contribute to
engine performance in a vehicle and are expected to be the key growth drivers for the company in the future.

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Financial Snapshot

Standalone Financials
Particulars
(Rs. in Million)
Income Statement FY12 FY11 FY10
Net Sales / Income from Operations 10,362.0 9,274.0 7,363.3
Expenses
Cost of material consumed 8,345.0 7,139.0 5,377.8
Change in Inventories -209.0 -34.0 208.5
Employee Benefit Expenses 1,096.0 901.0 682.6
Administrative & Other Expenses 1,431.0 1,012.0 738.6
EBIDTA -310.0 256.0 355.8
Depreciation & Amortization 375.0 229.0 159.3
Finance Costs / Interest Expense 117.0 19.0 2.3
Other Income 85.0 43.0 87.6
Profit After Tax (PAT) -722.0 20.0 188.9
Key Ratios – Income Statement
EBIDTA Margin (%) -3.0 2.8 4.8
PAT Margins (%) -7.0 0.2 2.6
Balance Sheet
Networth 1,371.0 2,093.0 2,072.9
Non – Current Liabilities / Loan Funds 732.0 0.0 99.3
Non Current Assets / Fixed Assets 1,508.0 1,427.0 980.5
Inventories 1,606.0 1,574.0 1,077.5
Debtors 1,126.0 750.0 559.4
Key Ratios – Balance Sheet
Debt : Equity (x) 0.6 0.2 0.0
Book Value (BV) (in Rs.) 49.1 75.0 74.4
Return on Capital Employed (ROCE) (%) -21.3 2.8 13.7
Return on Equity (ROE) (%) -41.7 0.96 9.4
Debtors Turnover Ratio (x) 12.1 15.5 12.95
Inventory Turnover Ratio (x) 7.1 7.60 7.7
Valuation Ratios
P/E (x) - 95.4 14.1
P/BV (x) 1.12 0.9 1.22
EV / EBDITA (x) - 5.67 4.49
Source : Capitaline.com; as on 31st March, 2012

From the Research Desk of LKW’s Gurukshetra.com

 Despite the challenging scenario witnessed in the Automotive and Auto Ancillary sector, the
company reported an increase of 11% in Net Sales for FY2012 on a standalone basis that stood
at Rs. 10,362 million as compared to Rs. 9,274 million for the corresponding period during the
last fiscal. However, owing to the significant rise in cost of sales on account of the weakening
rupee, inflationary situations and decline in demand from automobile manufacturers, Denso
reported a loss at the EBIDTA level which stood at Rs. 310 million versus a profit of Rs. 256
million in FY2011.

 Notwithstanding the increase in topline during FY2012, the EBIDTA came under pressure
thereby squeezing the EBIDTA margins. This was primarily because of rising input costs, sticky

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 inflation, adverse foreign exchange scenario and weakening rupee, disturbances and labour
unrest with major customers which impacted its operations. The labour unrest at Manesar plat
of Maruti Suzuki India Limited impacted the company as Maruti is their biggest customer .
Resultantly, the loss was to the extent of Rs. 310 million at the operational level as compared
to a profit of Rs. 256 million in FY2011.

 In-line with the subdued operational performance and due to a sharp increase in interest costs,
the PAT too came under pressure as the loss at the bottomline level widened to Rs. 772 million
in FY2012 against Rs. 20 million profits in FY2011.

 The other challenges faced by the company were in terms of erratic demand from the
automakers. Further, to ensure that the company retains market share, it imported more
material and components and also carried higher inventory on the books to ensure adequacy of
supply to its OEMs.

 As a result of the above, there was severe pressure on the working capital as the debtors as
well as inventories increased. However, the quantum of increase in Debtors was to the extent
of 50% on a y-o-y basis which in the end resulted in a slippage of the Debtor Turnover ratio from
15.5 times in FY2011 to 12.1 times in FY2012.

 For Q1 FY13, the net revenues from operations stood at Rs.2822.7 million which grew by 5% on
a q-o-q basis. The EBIDTA has risen by 46% in Q1 FY13 to Rs. 286.8 million as compared to Rs.
196.1 million in Q4 FY12 primarily due to reduction in inventories and lower cost of raw
materials on a sequential basis. This led to an improvement in the Profitability and Net Margins
which stood at Rs. 162.7 million and 5.76% respectively from Rs. 75.4 million and 2.82% in Q4
FY12.

 While the company has been one of the preferred component suppliers for OEMs, its
dependence on a handful of vehicle manufacturers like Maruti Suzuki and Hero Moto Corp poses
a threat to its revenues. However, this is a notable trend with most auto ancillary companies
which rely on one big customer for majority of their revenues. Nevertheless, its ability to
contain the inflationary pressure and reduce stress on margins by being able to pass on hike in
raw material costs, sustaining market share and easing pressure on working capital will need to
be monitored.

Further, with a negative growth witnessed by the Automobile industry the progress on the
expansion plan in Bangalore too merits watching. Nevertheless, the company’s thrust on
vehicle engine performance based products like Alternators / Starters and CDI / Magneto for
four wheelers and two wheelers respectively that result in fuel cost optimization augurs well
from a longer term perspective.

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 Peer Comparison

The below tables gives a snapshot of the financial performance of the company for FY2012 vis-à-vis
some of the well known players with large and diversified business operations in the Electrical
Engine segment of the intensely competitive Indian Auto Components Sector .
(Rs. In million)
Standalone Financials
Denso Kirloskar Oil
Particulars Bosch
(India) Engines
Net Sales 10,362 23,260 79,972
EBIDTA -310 3,044 13,498
PAT -722 1,918 11225.6
EBIDTA Margins (%) 1.35 13.1 16.9
PAT Margins (%) -6.97 8.2 14.0
P/E (x)^ 0.00 31.26 24.82
P/BV (x)^ 1.12 0.49 6.05
Debt : Equity (x) 0.21 0.00 0.07
EV / EBITDA (x)^ 0.00 29.87 15.55
Source : Capitaline Database, ^TTM as on June 2012

Performance on the Bourses

as on 20th September 2012

Stock Performance

120
100
80
%

60
40
Denso India BSE SmallCap
20
-

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 About the Industry
The Indian Auto Components Industry is currently
valued at USD 30 billion and is estimated to grow
at USD 100 billion by 2020. It derives its growth
impetus from the growing Automobile Industry.
This translates into a CAGR growth of over 12-15
per cent as per Automotive Components
Manufacturers Association (ACMA). Further, Indian
share in world auto components is estimated to
grow over 3 per cent by 2015-16 against a meager
0.4 per cent in 2003-04.
The Rs 1,600 billion (US$ 30.77 billion) Indian auto
component industry clearly derives its growth
impetus from the growth in automobile industry.
Notably, the slow down witnessed by the
Automobile Industry has certainly impacted the
demand sentiment for the Auto Component
Industry as well. However, an expected pick-up in
growth for the Automobile industry over the
longer term is expected to eventually drive
growth for the auto parts sector. According to the
Society of Indian Automobile Manufacturers,
automobile sales in FY13 are expected to grow
10% compared to a 2% growth in FY12. This would
revive demand for auto components in the coming
quarters.
Market Survey and current trends indicate strong
possibilities of high growth rate in automotive
market in coming years. However presently the
automobile industry is faced with the challenging
times with uncertainties on the demand side in
coming months, which hopefully is only a short
term phenomenon. The total automobile market
is expected to grow by double digits annually for
the next 5 years. India is emerging as a small car
hub in the Asia Pacific region. This is evident from
the fact that almost all the major international
automobile manufacturers have registered their
presence in India and have started manufacturing
small cars in this country.
It is forecast that by 2020 India would be one of
the top five automobile manufacturing countries
in the world. These positive developments in the
automobile sector would augur well for the auto
component industry and the company. (source:
Company Annual Report).
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Outlook
The Company is a part of the Auto
Components Industry within the overall
Indian automotive industry, which is
emerging as one of the most preferred
destination for Automobile Manufacturers
across the globe thus the growth, is likely to
sustain.
Though there are projections of good growth
for the Indian car and two wheelers market
in the medium to long term, based on growth
in household income of burgeoning
middleclass in India, the market will be
subject to economic cycles and sensitive to
fuel prices and interest rates in the near
term. Further, progress on capex at
Bengaluru needs to be monitored in the wake
of declining demand situation for vehicles
from the end user.
The ability to localize components and
systems is expected to open up vast
opportunities for component suppliers and
also the Company.
Disclaimer
All information contained in the document has been
obtained by LKW’s Gurukshetra.com from sources believed
to be accurate and reliable. Although reasonable care has
been taken to ensure that the information herein is true,
such information is provided as is without any warranty of
any kind, and LKW’s Gurukshetra.com in particular makes
no representation or warranty express or implied, as to the
accuracy, timeliness or completeness of any such
information. All information contained herein must be
construed solely as statements of opinion, and LKW’s
Gurukshetra.com shall not be liable for any losses incurred
by users from any use of this document or its contents in
any manner. Opinions expressed in this document are not
the opinions of our company and should not be construed
as any indication of our recommendation to buy, sell or
invest in the company under coverage.
5
 Financial Graphs

Net Income from Operations

12,000
10,000
Rs. in Millions

8,000
6,000
4,000
2,000
0
FY 2010 FY 2011 FY 2012
Net Income from
7,363 9,274 10,362
Operations

EBITDA & EBITDA Margins

%
450 6
Rs.in Millions

300 4
150
2
0
0
-150
-300 -2
-450 -4
FY FY FY
2010 2011 2012
EBIDTA 356 256 -310
EBIDTA Margins 4.8 2.8 -3.0

PAT & PAT Margins

400 4
200 2
0 0
Rs. in Millions

-200 -2 %
-400 -4
-600 -6
-800 -8
FY FY FY
2010 2011 2012
PAT 189 20 -722
PAT Margins 2.6 0.2 -7.0

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 Disclosure

Each member of the team involved in the preparation of this report, hereby
affirms that there exists no conflict of interest.

The report has been sponsored and published as part of

Initiative of BSE’s Investors’ Protection Fund

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