Pewee et ecco ——————————————— ——————e' OMAX AUTOS LIMITED PNUD NINE OUI V INS Peter eens E aEeee ‘Market Capitalisation Te. Crores 9 52 Week High/Low me sa7n20 Dituted EPS (Consolidated, FFI) Rs. 100 Eawy ines “4 Regression Bets sme oz ‘Average Daily Volusnes” Lathe oa “Absolute ol. to Sentex ae ee PIN e rete 28 Research ‘Leading supplier for Automobile components; Diversified into railways and home furnishing business Omax Autos Limited (Omay) is engaged in the manufacturing, and sale of auto compon parts for the nwowheeler and if foursvheeler industry India and internationally. manufactures sheet metal parts, machined tubular, and electroplated and painted components. Hero MotoCorp Limited is the key client for the company. ‘The company’s other customers, ‘TVS Motors, Honda Siel, ince | Maruti Intemational Tractors etc. Omax diversified from its auto mannfacturing and ventured into always and home furnishing Dusiness. The home furnishing business of the company is ess and carbon steel divided into two parts viz stainless steel bu Dusiness. ‘Healthy outlook for the Auto Component sector CARE Research believes the outlook continues to be healthy for Be, Crores F¥09¥YI0 YI the auto component seetor on the back of stable growth in the Nae SSS #4 8% 1486 Indian Automobile sector. However, the increasing competition EBITDA oo ‘EBITDA 0.6m 9.4% som itt the alto component market coupled with the limited rar 7% 21 bargaining power in the OEM, replacement and the export Paracas 08% 10% 18% segments for atifo component manufactures pose a threat to the Gearing times) was WoCE, Hie 196 rem SOF Kor 46x 939% 125% Keyconcems re tenes) 44 Voluilty in raw material prices EV/EBITDA (times) 24 Increasing competition from unorganized players in the Original Equipment Mannfacturing (OEM) segment + Significantly dependant on Hero MotoCorp Limited as about 62% of consolidated revenues are derived from the company ‘Valuations ee Amod Khanorkar ‘General Manager 132675435 OMAN is at trailing P/E and EV/EBITDA Jumana Badshah Manager 213481 multiples of 44x and 2x, respectively. * CMP: Current Market Price 1 ‘worw.careratings.com «Resi OMAX AUTOS LIMITED aoe ROUND Background Incorporated in 1988 by the Mehta family, Omax manufactures sheet metal components, precision machined components, tubular metal components and sprockets for supply to domestic automotive Original Equipment Manufacturers (OEMs) and tier-1 auto component m nufacturers in Europe and the United States. Omax has ‘one of the largest sprocket mannfacturing capacities in the country. Its products for two-wheelers include steering handle assemblies, carriers, side covers, engine guards, oil pump assemblies, sprocket cam and timing, frame assemblies, pedal kick starters, mufllers, footrests, main stands, brake pads, sprockets and chain cases. ‘The company’s products for fourswhecler comprise neck fuel filters, trank hinges, steering coin shafis, wiper rods, frame assemblies, transmission shafis, rocker arm shalts, truck chassis, back plates for brake shoes, piston rods for damper sembly, shroud fans, door beams, half shalt bars, base battery sets and seat assemblies. As a part of dive fication strategy, the company has also commenced manufacturing sheet metal components for home furnishing business and chassis for commercial vehicles. Operations, ‘The company has ten manufacturing facilities of which eight are located in Haryana, one in Ban (Kamataka) and the other at Lucknow (Uitar Pradesh). In FY1O it set up a plant at Bawal (Haryana) to ‘manufacture home furnishings products. The company is also a registered supplier to Indian Railways. ‘The company has set up a plant at Gurgaon (Delhi) for manufacture and supply of components for railways. During FYI1 it produced 116, company also successfully installed 100 kilowatt-peak units (kwp) rooftop solar plants andl gas-based ge 17 tonnes of sheet metal, tubular and machined components, and 8 pieces of dies. ‘The erator sets at Dharuhera and Manesar units, which will help it to reduce its power costs. Industry Segments ‘The revenue segments for Omax are: 1) Automative 2) Engineering 3) Home Furnishing and 4) Railways. Automative: The company manufactures Tubular welded component, sprockets, welded and sheet metal components for two-whecles, passenger cars and commercial vehicles in this segment. Engineering: Omax has entered into a JV with COC (China Oghiara Corporation) tooling and stampings to develop an advanced tool room. The tool room has latest state-oFthe-art machines and sofiwares for manufacture of tools and dies. Home Furnishing: ‘This segment is divided into two parts viz stainless steel business and carbon steel business. It had started the production in FY10 with business from IKEA and is entirely driven by exports. vwirw.careraings.com 2 «Lelie Bastard OMAX AUTOS LIMITED GRE Research Railways: The company is a registered supplier to Indian Railways. The company has set up a new plant at Gur Railways on tender basis. (Delhi) for manufacture and supply of components for railways and has commenced supplies fo Indian Omax: Peer comparison st) Net operating income EBITDA, PAT ‘Growth in net operating income EBITDA Margin, PAT Margin RoCE RoE Price/Eamings (P/E) Ratio Price/Book Value(P/BV) \ Enterprise Value (EV/EBITDA, Lomax Rico rer) ee fee ret Rs, Crores: Rs, Crores, Rs, Crotes % % * % % Source: Capitaline and CARE Equity Research « 3 ‘wwe. careratings.comOMAX AUTOS LIMITED Total Income shows healthy growth in FY11 ‘The total income for Omax increased by about 40% in FYI over FY10 on account of sustained demand from the auto sector in FY1L and strong grow in the sales of Hero MotoCorp which is the key customer for the company. ‘The growth in the home furnishing segment of the business stood at about 38% in FYLL over FY10.. EBITDA margin weakens; PAT margin stable ‘The EBITDA margin for the company has reduced by about 140 bps in FYLL over FY10. Although the company. hhas raw material indexation arrangement with most OEMS, it was negatively impacted by steady increase in commodity prices during FYLL. The PAT margin for the company showed marginal improvement of 20 bps in FYI over FIO. EPS growth continues to be on a high growth trajectory Net profit for the company increased by about 50% in FY11 over FY10. Even the EPS increased in tandem with the Net Profit and recorded an increase of about 50% in FY11 over FY10. The EPS had shown a growth of about 100% in FY10 over FYO9. ‘Omax: Financial Performance (FY07-11) aac) ‘Net operating income EBITDA x vwirw.careraings.com 4 «EXPANSION: Expansion plans and initiatives ‘Omax set up a chasis manufacturing plant for Tata Motors in FYI0, Addi nally, a second assembly line is being set up. with an additional annual capacity of 30,000 frames with press shop improvement at Lucknow plant, ‘The company plans to grow its exports under the home furnishing business. ‘The management is in talk with various new enstomers in the Railway business including DMW Patiala, ICF Chennai, SRY Thailand, CRPF ete for business. The company has also planned for manufacturing of new products in this segment from is new facility at Faridabad. Key concerns Volatility in raw material prices such as copper, steel, iron, ete. The auto component manufacturers typically have low bargaining power and find it difficult to pass on price increases to the price-sensitive market. High competition in the sheet metal component business in view of large number of competitors and limited value-add nature of operations. Significantly dependant on Hero MotoCorp Limited as about 62% in FYL1 (61% in FY10) of consolidated revennes are derived from the company Free trade agreements (FTAs) signed by India in FYIL have also made it difficult for local component makers. ‘Trade agreements signed with countries like ‘Thailand and China, which already offer a number of incentives to their domestic players, are perceived to be a huge threat to India, Indian auto component manufactures face tough competition from aguressive Chinese suppliers. ‘wwrw.careratings.com. «PST tect Indian Auto Component Industry is transforming itself from a low-volume, highly fragmented one into a competitive industry backed by strengths like technology, efficiency and evolving value chain, ‘The sector can be traced back to pre 1980’s where it was a protected market with import tariffs and the market was primarily oriented towards the supply of components to domestic manufacturers. Post 1980, one major policy initiative was taken, which was called phased ‘manufacturing program (PMP). Under this program efforts were taken by the OEMS, auto coniponent manufacturers with 1 dne support from the govemment for modemisation in product and manufacturing technology, improvisation in quality and set up standard for manufacturing practices. Post 1991 (liberalization phase) many global OFM and ‘Tier 1 suppliers started operations in India. This paved the way fo a large number of JVs in the component industry. After the end of the PMP in 1991, government introduced MOU system that continued emphasis on the aspect of localization of components. ‘With support from this policy, the component industry developed further capability to manufacture new breed of auto components required for the new-generation vehicles. ‘The industry mainly caters to two segments 1. OEMs 2 Replacement market (Afiermarket) OEM dominates the auto component market contributing aro id 75 per cent of the market while the replacement market shares around 25 per cent. Unorganized players mainly dominated the replacement market, which were mostly Tier 3/4 component manufacturers. ‘The Indian auto component industry is highly fragmented and valued at around Rs.1,368 Dillion (USS 30 billion) in 2010-11. ‘The industry manufactures approximating 20,000 components types used in automobile and related industries. The industy has fast transformed itself from labour-intensive less-echnological products {0 value-added technologically-intensive products over a period of the last one decade. In terms of sales (Reve then Bharat ) Bosch is the leading market player followed by battery maker Exide Industrie: Fore. Today, India is one the major outsourcing hubs for the auto components industry in the world. Developing technologically-intensive products and good distribution network are some of the key success factors for the industry. Steel, Alnminum and Cast iron are the major raw materials used in mannfacturing of anto components. Any change in the prices of these materials has a direct bearing on the profitability of auto component manufacturers. Critical components like engine parts, drive transmission, st ng, ele are technologically-intensive products. Manufacturers have to constantly upgrade their product technology suiting the ever-changing requirements of OEMs. For example, with the rising emphasis of emission norms and increasing awareness of the buyers, OEMs are required to continuously upgrade their products and auto component manufacturers have to keep pace with the changes in technology. ‘The Indian auto component industry is highly fragmented and valued at around Rs.1,368 billion (US 30 billion) in 2010- wonw careratings.com. 6 ¥YLelie Bastard OMAX AUTOS LIMITED GB Research LI. The industry has the resources {0 manulacture the entire range of components required for vehicle manufacturing, approximating 20,000 components. The industry is transforming and entry of new players in last Few yea market is valued approximately Rs 1,140 billion (U have led to surge in the auto component industry. The dome: Dillion) while the remaining 228 billion (USS 5 billion) worth auto components were exported in 2010-11. The OEM market is valued Rs.855 billion (USS 18.8 billion) whereas the replacement market i Rs.285 billion (US $ 6.25, billion). mated approxinia Component wise market segmentation FY1 19.0% = Engine Pans "Drive & Tranemission Steering pants Body & Chassis ‘= Suspension & Braking Parts "=Equpments ‘Electrical Pants "Others Source: Automotive Components Manufacturers Association of India (ACMA) and CARE Research. CARE Rescarch estimates the industry to grow in the range of 13-14 per cent during 2010-11 to 2015-16 period on a CAGR basis. Healthy automobile growil coupled with continued rise in replacement demand would lead this growth, CARE Research foresees more expansion projects in the pipeline from both new as well as established automobile players which would also continue (0 boost auto component dem 1. Furthermore, low-cost destination advantage and availability of skilled labour makes India an attractive manufacturing destination for many global giants for meeting their overseas requirement. CARE Research believes, India would continue to have the upper hand in the auto component sourcing and exports are estimated to grow in a range of 21-29 per cent from Rs.228 billion in 2010-11 to around Rs.618 billion in 2015- 16. CARE Research believes, concerns over rise in interest rates and fuel prices would slow down the automobile industry ‘growth in the current fiscal, consequently hampering growth for auto component industry as well. However, these concerns are expected to fade off in medium to long-term period providing a healthy growth scenario for the auto component industry. ‘Supply and Competition M 7 ‘worw.careratings.com ¥OMAX AUTOS LIMITED a ‘There is no distinction between the two-whecler and four-wheeler auto component manufacturer in the Indian auto component industry. The major organized players cater to all segments of the automobile industry (ie. wo-wheeler, passenger vehicles, commercial vehicles and tractor). However, since commercial vehicle and tractor components are specialized in load bearing, they differ to some extent in terms of material used and production techniques. ‘The global key automakers have brought along th international component suppliers into India, Major intemational to component manufacturers like Lear Corporation, Delphi, Visteon, Mando, ZF Steering, Bosch, Motherson Sumi, Denso cic have established their presence in India, ‘The entry of these players led to introduction of new technologies, new products, improved quality and better efficiencies, which in t indu n acted as a catalyst to the development of local compones Factors of production Steel, Aluminum and Cast iron are the major raw material used in manufacturing of auto components. Any change in the prices of these materials has a direct bearing on the profitability of auto component manufacturers. Critical components like engine parts, drive transmission, steering, etc are technologically-intensive products. Manufacturers have fo constantly upgrade their product technology suiting ever-changing requirements of OEMs. With great importance given to emissi on norms by the government and its increasing awareness of the buyers, OFMs are required to continnously upgrade their products and auto component manufacturers have 10 keep pace with the ¢ ges in technology. Furthermore, the unorganised industry makes it difficult to bargain from OEMs in ease of sharp rise in inp prices and in tm have to bear hit on their margins. The auto component mannfacturing is capital-intensive business requiring high capital cost for setting up a manufacturing unit. Government Policies and Regulations ‘The anto component is not rigidly regulated by the Government. There are around 625 players in the organized sector segment which contribute approximate 30-35 per cent of the domestic sales while the unorganized segment has a presence of more than 6,000 units. ‘The auto component industry may not seem important to the economy in terms of its direct contribution to the GDP (23 pet cent) of to the exchequer (approximately 3 per cent) or to the Foreign exchange earnings (2 per cent of India’s exports in vahte). However, this industry is indirectly very important, as it employs close to 10-11 million people directly and indirectly, which makes it significant amongst the Small and Medium Enterprise (SME) sector. Government allows 100 per cent foreign direct investment in the sector. This may bring in additional competition, but creating dealer network and brand name remains a challenge for the new entrant. «Poon OMAX AUTOS LIMITED 28 Research ‘Net operainginconie Toa 7a SCC EBITDA 793 799 799 m0. Depreciation 212 268 2S EBIT 580 531 ‘A Inerest 198 296 24 3h par aa7 26 90 204 al Ordinary PAT (After ninovity interest) 260 16 68 42 aia PAT (Afier minority interes) 260 16 68. M2 21 Filly Died Eins Per Share™ Re) 122 75 a2 66 100 Dividend, incoding 18 ED} 2H a2. a Tou Curent Face Value of Rs 107 per dare ‘Net wort (incl Minority Ineres) 1333 157 TG Tt 1788 Delt 280 BARB SLO 6 Deferred Libis / (Asses) 13 Ls im 160 167 ‘Capital Employed BT SRB Net Fined Assets Gad. Capiadl WIP) 20 «SITT—~«C«CDSSCDSCOD Invest A 06: 06 e : Loans and Advances 516 487 605 sea mA Inventory 321 30.1 36.3 514 Receivables 585 96.5 v0.3 126.1 B17 Cash and Cash Baquialents 82. 77 410 6.1 5a Current Assets, Loans and Advances B16 ADHD AOL Less: Current Libilies snd Provisions 1008 891189 120 1870 ‘Toral Asses 3478S DBAS Ratios ‘Growl in Operaiing Income Tox Tao Growth in EBITDA 03% 0.0% 5% Growth in PAT 81% FRO 100.9% 9 Growth in EPS 81% SRO" 100.9% 40.8 EBITDA Maria 10.8% 958 9.4% 80% PAT Maruin 20% 0.85 16% 13% RoCE, Taw Tas TAB Rok 11.5% 4.655 99% 1256 DebcBquiy times) 19 19 15 Inerest Coverage dimes) 12 16 19 Curtent Ratio times) 9 21 17 Iaventory Days 16 u 16 Receivable Days 8 39 3 a Phe / Famings (PD Ratio ie Price / Book Valic(PBV) Ratio 05 Enterprise Vane (EV/EBITDA 24 ‘Source: Capitaine, CARE Equity Research ‘wwrw.careratings.com. «(scion ‘+ Each member of the team involved in the pre tion of this grading report, hereby alfirms ts no conlict of interest that can bias the grading recommendation of the company. ‘© This report has been sponsored by the Bombay Stock Exchange (BSE). 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