CMP 403.95

Target Price 448.00

ISIN: INE737H01014

APRIL 4th

2014

FIEM INDUSTRIES LIMITED

Result Update: Q3 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector Auto Components

BSE Code 532768

Face Value 10.00

52wk. High / Low (Rs.) 428.00/179.05

Volume (2wk. Avg. Q.) 42000

Market Cap (Rs. in mn.) 4832.05

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY13A FY14E FY15E

Net Sales 6022.15 7223.98 8336.47

EBITDA 702.22 897.22 1023.20

Net Profit 273.15 377.20 441.76

EPS 22.83 31.53 36.93

P/E 17.69 12.81 10.94

Shareholding Pattern (%)

1 Year Comparative Graph

FIEM INDUSTRIES LIMITED BSE SENSEX

SYNOPSIS

Fiem Industries Ltd is one of the leading

manufacturers of automotive lighting & signaling

equipments & rear view mirrors.

The company has purchased land (7.65 Acre) for

setting-up a new factory in Ahemadabad (Distt.),

Gujarat for manufacturing and supplying of

Automotive Lighting & signaling Equipments.

During the quarter the net profit has increased by

55.40% to Rs. 102.81 mn as against Rs. 55.40 mn in

the corresponding period of previous year.

Net sales registered 25.32% increase and stood at a

record Rs. 1881.08 million from Rs. 1501.07 million

over the corresponding quarter last year.

The company has reported an EBITDA of Rs. 238.05

million in Q3 FY14, an increased by 34.07% against

Rs. 177.56 million in Q3 FY13.

During the Quarter, the company has set up a Joint

venture company (JVC) in Italy with Horustech

Lighting S.r.I, on 12th Dec, 2013.

Fiem has signed a ‘MoU’ with two Japanese

companies namely, Honda Lock Mfg. Co., Ltd., and

Toyota Tsusho Corporation, Japan for a joint

venture proposal in India for manufacturing of Key

Sets like Door Mirrors and Outside Handles.

Net Sales and PAT of the company are expected to

grow at a CAGR of 16% and 28% over 2012 to

2015E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Fiem Industries Ltd. 403.95 4832.05 22.83 17.69 3.13 40.00

Automotive Axles Ltd. 365.00 5515.90 6.30 57.94 1.97 20.00

Rane Madras Ltd. 204.95 2129.50 15.51 13.06 1.58 70.00

Amara Raja Batteries Ltd. 391.00 66838.90 20.31 19.27 6.31 252.00

Recommendation & Analysis - ‘BUY’

For the 3rd quarter of accounting year 2013-14, Fiem Industries Ltd posted a 25.32% growth in net sales to Rs.

1881.08 million from Rs. 1501.07 million in previous year period. Profit before tax (PBT) at Rs. 146.29 million in

Q3 FY14 compared to Rs. 93.54 million in Q3 FY13, registered a growth of 56.39%. Net profit jumps to Rs. 102.81

million against Rs. 66.16 million in the corresponding quarter ending of previous year, an increase of 55.40%.

Operating profit is Rs. 238.05 millions as against Rs. 177.56 millions in the corresponding period of the previous

year, registered a growth of 34.07%.

During the Nine month ended 31st Dec 2013, Fiem registered its total Income up by 18.97% at Rs. 5200.27

million against Rs. 4371.20 million over the prior period of previous year. PAT ramps up by 41.82% and stood

at Rs. 254.11 million as against Rs 179.18 million over the corresponding period of previous year. For the

period of 1st April 2013- to 31st Dec 2013, Growth in Operating profit up by 25.62% and registered to Rs.

634.69 million from Rs. 505.26 million in the period of 1st April 2013 to 31st Dec 2012.

Fiem Industries Ltd has set up in to 50:50 Joint venture with Horustech Lighting S.r.I, in Italy and incorporated

with the name called as ‘centro Ricerche FIEM Horustech S.r.I. on 12th Dec, 2013. By this new designing setup,

Centro Ricerche FIEM Horustech S.r.I. will add new dimensions to Fiem's designing capabilities and will prove a

major strength in offering new products include Conventional and New Generation LED automotive lighting &

signaling equipments such as LED headlights, tail lights, turn signals and rearview mirrors etc. for 2-wheeler and

4-Wheeler segment and LED Luminaries for In-door and Out-door applications to its customers.

The company has signed a ‘MoU’ with two Japanese companies namely, Honda Lock Mfg. Co., Ltd., and Toyota

Tsusho Corporation, Japan for a joint venture proposal in India for manufacturing of Key Sets like Door Mirrors

and Outside Handles. The major breakthrough in diversification of the product line as well as enhancing the

presence of the Company in the Key Sets will be for four-wheel as well as for two-wheel vehicles segment and

being a new product line for the Company, will add new dimensions to the growth of the Company. We expect

that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the

coming quarters also. We expect the company to post a CAGR of 16% and 28% in its top-line and bottom-line

respectively. Hence, we recommend ‘BUY’ for ‘FIEM INDUSTRIES LTD’ with a target price of Rs. 448.00 on

the stock.

QUARTERLY HIGHLIGHTS (STANDALONE)

Results updates- Q3 FY14,

Fiem Industries Ltd. supplies auto components parts

to all leading OEMs in India and also exports to other

countries. Company also supplies these parts into

Replacement Market all over India, has reported its

financial results for the quarter ended 31st

DECEMBER, 2013.

The company has achieved a turnover of Rs. 1881.08 million for the 3rd quarter of the current year 2013-14 as

against Rs. 1501.07 millions in the corresponding quarter of the previous year. The company has reported an

EBITDA of Rs. 238.05 millions and increase of 34.07% over the prior period of previous year. In Q3 FY14, net

profit of Rs. 102.81 million against Rs. 66.16 million reported respectively in the corresponding quarter of the

previous year. The company has reported an EPS of Rs. 8.59 for the 3rd quarter as against an EPS of Rs. 5.53 in the

corresponding quarter of the previous year.

Break up of Expenditure

During the quarter Total Expenditure rose by 24 per cent mainly on account of increased in Cost of Material

consumed by 23%, Employee benefit expenses 23%, other Expenses 22% and along with Purchase of stock in

trade is the main attribute for the increase of expenditure. Total expenditure in Q3 FY14 stood to Rs. 1698.54

million as against Rs. 1368.83 million in Q3 FY13.

Break up of Expenditure

Rs. In millions

Q3 FY14 Q3 FY13

Cost of Material Consumed 1105.91 900.08

Purchase of Stock in Trade 32.57 8.01

Employee Benefit Expenses 211.97 172.89

Depreciation & Amortization

Expenses 55.13 44.90

Other Expenses 295.68 243.15

Months DEC-13 DEC-12 % Change

Net Sales 1881.08 1501.07 25.32

PAT 102.81 66.16 55.40

EPS 8.59 5.53 55.40

EBITDA 238.05 177.56 34.07

Latest Updates:

• Fiem industries Ltd. has set up in to 50:50 Joint venture with Horustech Lighting S.r.I, in Italy and

incorporated with the name called as ‘centro Ricerche FIEM Horustech S.r.I. on 12th Dec, 2013.

• Fiem Industries Ltd has signed a ‘MoU’ with two Japanese companies namely, Honda Lock Mfg. Co., Ltd., Japan

and Toyota Tsusho Corporation, Japan for a joint venture proposal in India for manufacturing of Key Sets,

Door Mirrors and Outside Handles.

• Fiem Industries has purchased land (7.65 Acre) for setting-up a new factory in Ahemadabad (Distt.), Gujarat.

The land is at strategic location near upcoming factory of the Company's esteemed customer Honda

Motorcycle & Scooter India Pvt. Ltd. (HMSI).

• In this new Plant the Company will be manufacturing and supplying Automotive Lighting & Signaling

Equipments, Rear View Mirrors as well as Plastic Molded Parts to upcoming factory of the Company's

esteemed customer HMSI in Gujarat.

COMPANY PROFILE

Fiem Industries Ltd. is one of the leading manufacturers of automotive lighting & signaling equipments and rear

view mirrors. The major business comes from the two-wheeler segment of the vehicle industry. It has a wide

range of lighting systems and rear view mirrors, sheet metals parts and plastic components for two and four

wheeler and its diversified products portfolio ranging form rear view mirrors, head lamps, tail lamps, roof lamps,

wheel covers, warning triangle, complete rear fender assembly, frame assembly, mudguards and various sheet

metal & plastic parts etc. is capable of catering to the needs of almost all segments of automobile industry viz.,

four-wheelers, LCVs, HTVs and tractors. The company has one foreign subsidiary i.e. 'Fiem Industries Japan Co.

Ltd.' incorporated in Japan.

FIEM has acquired certifications such as ISO 9002, QS 9002, QS 9000, ISO/ TS 16949:2002, & ISO 9001. It has

also acquired certification for conformity of production form RDW Netherlands. FIEM has also been accredited

with ISO14001-2004 Certification for Environment Management Systems. FIEM employees are constantly being

trained to meet the customer's specific requirements as per TQM. FIEM has become a Tier I Supplier not only in

India but also in Europe and USA.

FIEM is a known brand in Automotive Lighting and Rear View Mirrors in international OEMs and is considered as

synonymous of High Quality & Low Cost manufacturing Company. 'Business Sphere Magazine Group' has

conferred 2012-13 Award to the Company for ‘Bellwether in Auto lighting for 40 years."

Company has diversified into LED indoor and outdoor lighting business and manufacturing a large range of LED

products like LED Home Lighting, LED Bulbs and tubes, LED Solar Street Lighting, Multi-Functional Torches cum

Flasher Lights, LED Solar Lanterns, LED Display panels for buses and trucks and LED display signal systems for

Railways etc. which also forms part of above turnover.

Products

Fiem Industries Ltd is one of the leading manufacturers of automotive lighting & signaling equipments and rear

view mirrors for automobiles.

• Two Wheelers

� Kinetic

� Bajaj

� Hero Honda

� LML

� Yamaha

� TVS

� Honda

� Suzuki

� Piaggio

� Royal Enfield

• Four wheelers

� Maruti Suzuki

� Tata

� Daewoo

� Reva car

� Pre, Automobiles H.

Motors

� DCM Toyota

� Force Motors

� Ashok Leyland

� Peugeot

� Hyundai/ General

Motors

� Trailer & Truck

� Trailer & Car

� Swaraj mazda

� International Tractor

� Ford

� HMT

� Tafe

� Indo Form/ Preet

Tractor

� JCB Terex Vectr

� M7M VST Tractor

Trailer

• Auxillary Lamps

� Halogen Lamps

� Work lamps

• Warning Tringles

• Reflex Reflector

• Led Lamps

• Led Luminaires

Clients

• Two - Wheeler Segment (Domestic OEM Customers)

• Two - Wheeler Segment (Global OEM Customers)

• Four - Wheeler Segment (Domestic OEM Customers)

• Four - Wheeler Segment (Global OEM Customers)

FINANCIAL HIGHLIGHT (STANDALONE) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March 31, 2012-2015E FY12A FY13A FY14E FY15E

I. EQUITY AND LIABILITIES:

A) Shareholders’ Funds:

a) Share Capital 119.62 119.62 119.62 119.62

b) Reserves and Surplus 1323.71 1562.33 1800.29 2242.06

Sub-Total Net worth 1443.33 1681.95 1919.91 2361.68

B) Non-Current Liabilities:

a) Long-term borrowings 949.90 761.84 822.79 880.38

b) Deferred Tax Liabilities [Net] 193.04 242.14 300.25 366.31

c) Other Long Term Liabilities 25.92 17.37 22.93 29.35

d) Long Term Provisions 6.24 7.94 12.07 16.90

Sub-Total Long term liabilities 1175.10 1029.29 1158.04 1292.94

C) Current Liabilities:

a) Short-term borrowings 441.65 303.54 336.93 367.25

b) Trade Payables 644.09 745.61 860.43 946.48

c) Other Current Liabilities 429.26 494.05 637.32 764.79

d) Short Term Provisions 53.02 73.71 88.45 102.60

Sub-Total Current Liabilities 1568.02 1616.91 1923.14 2181.12

TOTAL EQUITY AND LIABILITIES (A+B+C) 4186.45 4328.15 5001.09 5835.74

II. ASSETS:

D) Non-Current Assets:

Fixed Assets:

i. Tangible Assets 2805.42 2915.54 3349.03 3831.29

ii. Intangible Assets 9.64 10.87 15.76 22.70

iii. Capital work-in-progress 13.73 14.79 15.83 16.77

a) Sub-Total Fixed Assets 2828.79 2941.20 3380.62 3870.76

b) Other non-current assets 0.99 1.08 1.57 2.19

c) Non Current Investments 0.46 0.46 0.46 0.46

d) Long Term Loans and Advances 72.15 80.87 100.28 123.34

Sub-Total Non-Current Assets 2902.39 3023.61 3482.92 3996.76

E) Current Assets:

a) Current Investments 0.00 0.00 0.00 0.00

b) Inventories 457.37 486.66 569.39 690.26

c) Trade Receivables 670.70 688.17 784.51 925.73

d) Cash and Bank Balances 52.66 15.32 27.27 48.27

e) Short Term Loans and Advances 101.57 108.93 130.72 167.32

f) Other Current Assets 1.76 5.46 6.28 7.41

Sub-Total Current Assets 1284.06 1304.54 1518.17 1838.98

TOTAL ASSETS (D+E) 4186.45 4328.15 5001.09 5835.74

Annual Profit & Loss Statement for the period of 2012A to 2015E

Value(Rs.in.mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 5335.42 6022.15 7223.98 8336.47

Other Income 3.01 3.53 8.32 10.32

Total Income 5338.43 6025.68 7232.30 8346.79

Expenditure -4658.86 -5323.46 -6335.08 -7323.59

Operating Profit 679.57 702.22 897.22 1023.20

Interest -207.56 -129.30 -139.07 -148.81

Gross profit 472.01 572.92 758.14 874.40

Depreciation -168.84 -183.48 -217.24 -243.30

Profit Before Tax 303.17 389.44 540.91 631.09

Tax -91.73 -116.29 -163.71 -189.33

Net Profit 211.44 273.15 377.20 441.76

Equity capital 119.62 119.62 119.62 119.62

Reserves 1183.48 1423.09 1800.29 2242.06

Face value 10.00 10.00 10.00 10.00

EPS 17.68 22.83 31.53 36.93

Quarterly Profit & Loss Statement for the period of 30 JUNE, 2013 to 31 MARCH, 2014E

Value(Rs.in.mn) 30-Jun-13 30-Sep-13 31-Dec-13 31-Mar-14E

Description 3m 3m 3m 3m

Net sales 1520.09 1791.24 1881.08 2031.57

Other income 0.49 6.99 0.38 0.46

Total Income 1520.58 1798.23 1881.46 2032.03

Expenditure -1342.41 -1579.77 -1643.41 -1769.49

Operating profit 178.17 218.46 238.05 262.54

Interest -36.99 -36.88 -36.63 -28.57

Gross profit 141.18 181.58 201.42 233.96

Depreciation -52.03 -52.74 -55.13 -57.34

Profit Before Tax 89.15 128.84 146.29 176.63

Tax -28.62 -38.09 -43.48 -53.52

Net Profit 60.53 90.75 102.81 123.11

Equity capital 119.62 119.62 119.62 119.62

Face value 10.00 10.00 10.00 10.00

EPS 5.06 7.59 8.59 10.29

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 17.68 22.83 31.53 36.93

EBITDA Margin (%) 12.74% 11.66% 12.42% 12.27%

PBT Margin (%) 5.68% 6.47% 7.49% 7.57%

PAT Margin (%) 3.96% 4.54% 5.22% 5.30%

P/E Ratio (x) 22.85 17.69 12.81 10.94

ROE (%) 16.23% 17.71% 19.65% 18.71%

ROCE (%) 31.48% 33.96% 36.19% 35.09%

Debt Equity Ratio 1.07 0.69 0.60 0.53

EV/EBITDA (x) 9.08 8.31 6.60 5.87

Book Value (Rs.) 108.94 128.97 160.50 197.43

P/BV 3.71 3.13 2.52 2.05

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs. 403.95, the stock P/E ratio is at 12.81 x FY14E and 10.94 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.31.53 and

Rs.36.93 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 16% and 28% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 6.60 x for FY14E and 5.87 x for FY15E.

� Price to Book Value of the stock is expected to be at 2.52 x and 2.05 x respectively for FY14E and FY15E.

� We expect that the company surplus scenario is likely to continue for the next three years, will keep its

growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.448.00 for Medium to Long term investment.

INDUSTRY OVERVIEW

The automotive industry occupies a significant place in the Indian economy. The industry’s turnover touched US$

40.6 billion in 2012–13 and is expected to reach US$ 115 billion by 2020–21. The well developed industry acts as

a catalyst and gives impetus to the economic growth of the country.

India is emerging as a global hub for auto component sourcing and is set to break into the league of the top five

vehicle producing nations worldwide. The country is also emerging as a sourcing hub for engine components.

The Indian auto component sector covers a wide range of industries.

Market Structure

The industry is estimated to grow at a compound annual growth rate (CAGR) of 14 per cent during 2013–2021.

In addition, the industry recorded exports worth US$ 9.3 billion in 2012–13 and is projected to touch US$ 30

billion by 2020–21, according to data from Automotive Component Manufacturers’ Association (ACMA).

The Indian logistics industry is likely to continue its growth momentum due to the reviving fortunes of the sector

with booming end-user industries, as per RNCOS report ‘3rd Party Logistics Market in India’. The report

highlighted that the automobile industry dominates the third-party logistics (3PL) or logistics market with

majority share, and is forecasted to remain the fastest growing segment in Indian 3PL market. Continuous

improvement in logistic infrastructure has led 3PL services to be perceived as a far better mode of controlling

both internal and external logistic processes.

India: The Global Auto Hub

The Japan External Trade Organisation (JETRO) and the Maharashtra Industrial Development Corporation

(MIDC) have signed a memorandum of understanding (MoU) to set up the new industrial zone in Pune

exclusively for Japanese manufacturers. India is home to 962 Japanese companies across 1,804 locations. Pune,

being home to large automobile original equipment manufacturers (OEMs), is a potential area for auto

components sourcing with huge consumer market, reported by Director-General, Jetro-Mumbai.

JBM Auto has formed a joint venture (JV) with Italian bus maker BredaMenarinibus to manufacture luxury buses

in India. The Indo-Italian venture plans to set up a plant at Kosi, near Faridabad in Haryana, and produce 2,000

buses every year initially, at an investment of Rs 5000.00 million (US$ 81.30 million).

Apollo Tyres Ltd has closed a deal with Japan-based Sumitomo Rubber Industries to sell its South African

business for US$ 60 million. Sumitomo will take over Apollo Tyres South Africa, including the Ladysmith

passenger car tyre plant and Dunlop brand rights in 32 African countries.

The German manufacturer Knorr-Bremse has set up a new plant in Pune at an investment of €14 million (US$

19.18 million), to make complete braking systems for trucks. It has also established a technology centre for

engineering design in the city.

Farm equipment maker Same Deutz Fahr (SDF) proposes to shift some engine production lines from Italy to its

plant at Ranipet, near Chennai. The company plans to invest Rs 3000.00 million (US$ 48.78 million) over the next

one year in expanding the tractor engine production capacity.

Key Developments & Investments

Amtek Auto has signed an agreement to buy Germany-based Kuepper Group of companies for about €200

million (US$ 273.97 million) in its second big European acquisition in 2013.

JK Tyre and Industries Ltd plans to add Rs 3000.00 million (US$ 48.78 million) in revenues in a year through the

launch of 10 new products. The company also plans to invest Rs 14300.00 million (US$ 232.52 million) to ramp

up capacity at the Chennai plant.

Faurecia Interior Systems India plans to double its investments at its Chennai factory. The company is also

looking to double its capacity and create 100 more jobs by mid-2015.

Michelin Tyres has inaugurated two new Michelin certified Recamic tyre retreading facilities in Tamil Nadu, to

bring quality retread solutions for the truck and bus customers in the region.

Government Initiatives

The Union Finance Minister, Government of India, had a few add-ons for the industry.

� The period of concession available for specified part of electric and hybrid vehicles till April 2013 has been

extended up to March 31, 2015.

� The basic customs duty (BCD) on imported luxury goods such as high-end motor vehicles, motor cycles,

yachts and similar vessels was increased. The duty was raised from 75 per cent to 100 per cent on

cars/motor vehicles with CIF value more than US$ 40,000; from 60 percent to 75 percent on motorcycles

with engine capacity of 800 cc or more, and on yachts and similar vessels from 10 percent to 25 per cent.

� An increase in excise duty from 27 to 30 per cent has been allowed for SUVs with engine capacity exceeding

1,500 cc, while excise duty was decreased from 80 to 72 per cent, in case of SUVs registered solely for taxi

purposes.

� An exemption from BCD will be provided to lithium ion automotive battery for manufacture of lithium ion

battery packs for supply to manufacturers of hybrid and electric vehicles.

� The excise duty on chassis of diesel motor vehicles for transport of goods reduced from 14 per cent to 13 per

cent.

� Additionally, the Automotive Mission Plan (AMP) 2006–2016, aims to develop India as the destination of

choice in the world for design and manufacture of automobile and auto components, with output reaching

US$ 145 billion.

Road Ahead

The rapidly globalising world is opening new dimensions for the transportation industry, generating need for

more efficient, safe and reliable modes of transportation.

The ever increasing development in infrastructure, huge domestic market, increasing purchasing power and

stable government framework have made India a favourable destination for investment, as per the vision of AMP

(2006–2016).

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

C.V.S.L.Kameswari Pharma

U. Janaki Rao Capital Goods

B. Anil Kumar Auto, IT & FMCG

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