CMP 482.00

Target Price 540.00

ISIN: INE811A01012

DEC 27th

, 2012

KIRLOSKAR PNEUMATIC CO.LTD Result Update: Q2 FY13

HOLDHOLDHOLDHOLD

Stock Data

Sector Auto Component

BSE Code 505283

Face Value / Div. Per Share 10.00

52wk. High / Low (Rs.) 574.20/400.00

Volume (2wk. Avg ) 1195.00

Market Cap ( Rs in mn ) 5855.04

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

Years FY12A FY13E FY14E

Net Sales 6722.60 7394.86 8060.40

EBITDA 1017.20 1110.94 1215.66

Net Profit 619.10 668.97 736.95

EPS 48.22 52.10 57.39

P/E 9.46 8.75 7.94

Shareholding Pattern (%)

1 Year Comparative Graph

BSE SENSEX KIRLOSKAR PNEUMATIC CO. LTD

Source: Company Data, Firstcall Research

SYNOPSIS

Kirloskar Pneumatic Company Ltd. (KPCL),

part of the Kirloskar Group is a synonym for

providing high end integrated solutions

using Compression and Transmission

Technologies. KPCL was incorporated in

1958.

Revenue for the quarter of the company is

improved 7.81% to Rs.1337.00 million from

Rs.1240.20 million, when compared with

the prior year period.

The company recommended dividend ar Rs.

12/- per share declared on 1,28,44,338

Equity Shares of Rs. 10/- each fully paid for

FY 2012.

During the year 2011-12, the turnover of

Compression Systems Segment, was

Rs.5,781 Millions, (previous year Rs.4,352

Millions).

During the year 2011-12, the turnover of

Transmission Products Segment was Rs.885

Millions, (previous year Rs.565 Millions).

Net Sales and PAT of the company are

expected to grow at a CAGR of 18% and 19%

over 2011 to 2014E respectively.

Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend

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

Kirloskar Pneumatic Ltd 482.00 5855.04 48.22 9.46 2.55 120.00

Tecpro Systems Ltd 152.00 7672.00 25.85 5.88 1.00 30.00

ION Exchange Ltd 133.00 1806.70 13.76 9.67 1.11 20.00

Timken India Ltd 194.00 12364.60 7.04 27.56 3.95 200.00

Investment Highlights

Results updates- Q2 FY13,

Kirloskar Pneumatic Ltd is a flagship of Kirloskar

Group, manufacture of Air Compressors and

Pneumatic Tools in India, reported its financial

results for the quarter ended 30 Sep, 2012.

Months Sep-12 Sep-11 % Change

Net Sales 1337.00 1240.20 7.81%

PAT 108.60 117.00 -7.18%

EPS 8.46 9.11 -7.18%

EBITDA 187.80 177.60 5.74%

The company’s net profit slap down towards to Rs.108.60 million against Rs.117.00 million in the corresponding

quarter ending of previous year, an decrease of 7.18%. Revenue for the quarter improved 7.81% to Rs.1337.00

million from Rs.1240.20 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs.8.46 a share during the quarter, registering 7.18% decrease over previous year period.

Profit before interest, depreciation and tax is Rs.187.80 millions as against Rs.177.60 millions in the

corresponding period of the previous year.

Expenditure :

During the quarter variable cost raised by 1 per cent

mainly on account of increase in employee benefit

expenses along with consideration of Depreciation

in the rupee impact and witnessed. Total

expenditure in Q2 FY13 was at Rs. 1211.80 million

as against Rs.1200.70 million in Q2 FY12. Other

Expenditure was at Rs. 254.70 million and Cost of

Material Consumed is Rs. 727.30 mn in Q2 FY13 is

the primarily attributable to decline of expenditure.

Segment Revenue

Company Profile

Kirloskar Pneumatic Company Ltd is one of the core group companies. KPCL was incorporated in 1958 under the

chairmanship of Late Shri Shantanurao Kirloskar. KPCL has also established a number of joint ventures and

technology partnerships with leading global companies. It has earned the distinction of developing a host of

advanced products to suit Indian conditions and has been continuously updating them to maintain the highest

standards of quality and reliability. The company started its operations with the manufacture of Air Compressors

and Pneumatic Tools. New product lines were they added included Air Conditioning and Refrigeration systems,

Marine HVACR, Process Gas systems and Hydraulic Power Transmission machinery. The company has also

earned an enviable reputation for its Systems Engineering and Turnkey Project expertise. Kirloskar Pneumatic

Company Ltd has developed various sophisticated and high-tech products in the above categories to cater to the

demands of various industrial sectors.

While doing so, the company will always keeps in mind the best interest of all stakeholders and actions will be

guided by the company. It realize and equal concern towards the nature and Society to take all efforts towards

betterment of the same. Kirloskar Pneumatic Company Ltd (KPCL), is an ISO 9001:2008, ISO 14001:2004, OHSAS

18001:2007

Products

� Air Compreessor Division

To bring focused attention and create centers of competence specific to technology, these are sub divided in four

categories - Reciprocating compressors, screw compressors, centrifugal compressors & Ground support units

(GSU). The division has a complete range of air compressors covering reciprocating compressors to the high tech

centrifugal type as well as screw type compressors. These compressors cater to needs of diverse industrial

segments.

� Air conditioning, Refrigration & Proceess Gas Division

The ACR - PG division has the capability to manufacture Air Conditioning & Refrigeration compressors

(equipment group) and offer turnkey system solutions for refrigeration projects and process gas

applications. ACR - PG has four Business Groups that function as independent business verticals.

Equipment (Compressors for refrigeration system)

Refrigeration Systems (Industrial refrigeration packages, Customized turnkey projects, Screw

compressor package, Containarised Ice & water chilling plants & Marine HVACR)

Process Gas Systems (CNG compression packages & Gas compression packages)

Vapour Absorption Chillers (Gas / Oil, Steam, hot-water driven VAC’s).

� Transmission Division

Transmission Division specifically caters to the needs of the Rail, Defence and Non conventional energy

sectors. TRM has technological leadership in different types of gears and gear boxes with capacities ranging

from sub megawatt to higher megawatt range.

TRM products are sold directly through sales division in Pune. Spares are available with sales and authorized

dealers. The regional offices provide local support for sales and service. After-sales support is provided

through service personnel at HO and regional offices. Select dealers who are strategically located have

trained service personnel. Most of the products are delivered directly to the customer.

Financial Highlight

Balance sheet as at March31, 2012

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

Particulars March (Rs.in.mn) FY12A FY13E FY14E

1.Shareholder’s Funds

a) Capital 128.44 128.44 128.44

b) Reserves & Surplus 2169.00 2837.97 3574.91

Total Net worth 2297.44 2966.41 3703.35

2.Loan Fund

a) Secured loans 62.50 50.00 46.00

b) Unsecured loans

Total Liabilities (1+2) 2359.94 3016.41 3749.35

1.Fixed Assets

a) Gross block 1692.90 1929.91 2238.69

Less: Depreciation 787.00 810.61 826.82

Net Block

905.90 1119.30 1411.87

b) Capital Work in Progress

20.40 22.44 24.24

Total Fixed Assets

926.30 1141.74 1436.10

2. Investments 1030.70 1453.29 1802.08

3.Current Assets, Loans & Advances

a) Inventories 821.74 791.56 831.14

b) Sundry Debtor 1350.40 1485.44 1604.28

c) Cash & Bank Balance 251.30 271.40 290.40

d) Other Current Assets

0.00 0.00

e) Loans & Advances 479.80 508.59 544.19

Total Current Assets 2903.24 3056.99 3270.00

Less: Current Liabilities & Provisions

a) Liabilities 1985.70 2084.99 2175.18

b) Provisions 514.60 550.62 583.66

Net Current Assets 402.94 421.39 511.17

Total Assets( 1+2+3+4) 2359.94 3016.41 3749.35

Annual Profit & Loss Statement for the period of 2011 to 2014E

Value(Rs.in.mn) FY11 FY12 FY13E FY14E

Description 12m 12m 12m 12m

Net Sales 4917.30 6722.60 7394.86 8060.40

Other Income 96.10 79.10 83.06 87.21

Total Income 5013.40 6801.70 7477.92 8147.61

Expenditure -4230.50 -5784.50 -6366.97 -6931.94

Operating Profit 782.90 1017.20 1110.94 1215.66

Interest -18.70 -11.90 -13.33 -14.66

Gross profit 764.20 1005.30 1097.61 1201.00

Depreciation -113.30 -120.60 -135.07 -147.77

Profit Before Tax 650.90 884.70 962.54 1053.23

Tax -215.90 -265.60 -293.57 -316.29

Net Profit 435.00 619.10 668.97 736.95

Equity capital 128.40 128.40 128.40 128.40

Reserves 1729.00 2169.00 2837.97 3574.91

Face value 10.00 10.00 10.00 10.00

EPS 33.88 48.22 52.10 57.39

Quarterly Profit & Loss Statement for the period of 31Mar, 2012 to 31 Dec, 12E

Value(Rs.in.mn) 31-Mar-12 30-Jun-12 30-Sep-12 31-Dec-12E

Description 3m 3m 3m 3m

Net sales 1953.70 1492.40 1337.00 1470.70

Other income 14.40 19.20 17.90 24.17

Total Income 1968.10 1511.60 1354.90 1494.87

Expenditure -1751.50 -1268.90 -1167.10 -1291.27

Operating profit 216.60 242.70 187.80 203.59

Interest -1.20 -2.50 -3.90 -4.13

Gross profit 215.40 240.20 183.90 199.46

Depreciation -35.70 -30.50 -31.50 -32.45

Profit Before Tax 179.70 209.70 152.40 167.01

Tax -53.40 -65.30 -43.80 -52.61

Net Profit 126.30 144.40 108.60 114.40

Equity capital 128.40 128.40 128.40 128.40

Face value 10.00 10.00 10.00 10.00

EPS 9.84 11.25 8.46 8.91

Ratio Analysis

Particulars FY11 FY12 FY13E FY14E

EPS (Rs.) 33.88 48.22 52.10 57.39

EBITDA Margin (%) 15.92% 15.13% 15.02% 15.08%

PBT Margin (%) 13.24% 13.16% 13.02% 13.07%

PAT Margin (%) 8.85% 9.21% 9.05% 9.14%

P/E Ratio (x) 13.46 9.46 8.75 7.94

ROE (%) 23.42% 26.95% 22.55% 19.90%

ROCE (%) 43.88% 48.21% 41.10% 36.14%

EV/EBITDA (x) 7.48 5.76 5.27 4.82

Book Value (Rs.) 144.66 178.93 231.03 288.42

P/BV 3.15 2.55 1.97 1.58

Charts

Outlook and Conclusion

� At the current market price of Rs.482.00, the stock P/E ratio is at 8.75 x FY13E and 7.94 x FY14E

respectively.

� Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.52.10 and

Rs.57.39 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 18% and 19% over 2011 to 2014E

respectively.

� On the basis of EV/EBITDA, the stock trades at 5.27 x for FY13E and 4.82 x for FY14E.

� Price to Book Value of the stock is expected to be at 1.97 x and 1.58 x respectively for FY13E and FY14E.

� We recommend ‘HOLD’ in this particular scrip with a target price of Rs.540.00 for Medium to Long term

investment.

Industry Overview

The Indian auto component industry, which is currently valued at US$ 30 billion, will touch US$ 100 billion by

2020, according to Rajkot-based Ikon Marketing Consultants. The industry is growing at a steady pace of 15 - 18

per cent annually. The retail market (generally called as after-sales or after-market) for auto components is

valued at Rs 600 crore (US$ 111.11 million) and is expected to witness a quantum jump on the back of robust

domestic demand.

An analysis of medium to heavy-duty Hybrid and Electric Commercial Vehicle Market in China and India

estimated that the component revenues from India will reach US$ 212 million by 2020, which would account for

11 per cent of the global component market, as per Frost and Sullivan.

Market Structure

The auto component industry has been growing at a compound annual growth rate (CAGR) of 14.6 per cent

during 2007-11 and is expected to be a US$ 113 billion by 2020, as per data provided by Automotive Component

Manufacturers Association of India (ACMA).

The small and medium enterprise (SME) dominated automotive sector is among the top three sectors attracting

heavy online traffic on the site, IndiaMART.com, in terms of the number of buyers who visited from other

countries, both developed and developing, as per a report by IndiaMART.com. Asian countries are also key

buyers for auto products from India. Among the Indian suppliers registered on IndiaMART.com, the auto

component sector features in the top five categories, contributing 11.8 per cent to the whole pie. Product

categories such as pumps and pumping equipments took the top slot with 8.1 per cent buy leads posted on them,

followed by products such as nuts and bolts in second place and lights and accessories in third position.

Polaris Industries, maker of All Terrain Vehicles (ATVs), snowmobiles and motorcycles, is set to give a fillip to the

nascent motorsports market with its entry this year.

India: The Global Auto Hub

Supportive Government policies, positive business environment, availability of reasonably priced talented

workforce and stable outlook for the industry have made India a global hub for the international manufacturers

to set up their facilities in the country. The auto components manufacturers are also reaping the benefits.

• Automotive components maker Piolax India, a subsidiary of Piolax of Japan, has inaugurated its first

Indian facility at the Sri City multi-product Special Economic Zone (SEZ) in Andhra Pradesh (AP)

• Bosch Automotive Aftermarkets has launched 100 service centres in North India. These centres will

provide service to multi-brand vehicles across different segments of unit repair (fuel injection systems,

auto electrical units) and entire vehicular repair

• The joint venture (JV) between global gearing expert David Brown and Bharat Forge, manufacturer of

automotive and non-automotive components, David Brown-Bharat Forge, has opened its first industrial

gearbox service and assembly facility in Hosur, Tamil Nadu

• Panasonic Carbon India Co Ltd intends to enter the lead acid battery market for the industrial and

automotive sector. The Rs 13,000 crore (US$ 2.41 billion) lead acid battery market has been growing in

double digits, on back of the rapidly growing automobile sector. While, industrial batteries is a Rs 4,800

crore (US$ 888.89 million) market and automotive batteries constitute a Rs 8,200 crore (US$ 1.52 billion)

market annually

Key Developments and Investments

• Hero MotoCorp plans to set up Global Parts Centre (GPC) at Neemrana, Rajasthan. With an investment of

Rs 160 crore (US$ 29.63 million), the GPC will be spread across 35 acres

• TVS and Sons Ltd plans to take its multi-brand car service solutions business to the UK, the US and

Thailand. The company plans to add 65 to 70 owned outlets in India by 2013-14

• Sandhar Technologies Ltd has acquired 100 per cent stake in Bengaluru-based Mag Engineering Pvt Ltd,

one of the largest driver cabin manufacturer in India, for Rs 70 crore (US$ 12.96 million) - Rs 90 crore

(US$ 16.67 million)

• Skoda is increasing localisation levels and rationalising prices across the range of products it offers in the

country, in order to increase its volume in the Indian market

Government Initiatives

Gujarat has been one of the most proactive states in terms of investor-friendly policies and environment. Maruti

Suzuki India Ltd (MSIL) has signed a state support agreement (SSA) with the State Government. MSIL plans to

infuse about Rs 4,000 crore (US$ 740.74 million) in the initial phase of the project and equivalent amount would

be invested by the company's ancillary suppliers to set up a vendor park near the facility. The new unit is

expected to commence operations by 2015-16.

In a bid to improve safety features of vehicles, the Government has asked automobile manufacturers to develop a

gadget which would be similar to the 'black box' installed in planes. The owner would not be able to turn the

instrument off or on and the snapshot could be viewed by legal bodies, insurance companies and automakers. Mr

C P Joshi, Minister of Road Transport and Highways, has also asked manufacturers to contemplate on the option

of fixing such IT-enabled instrument to improve safety and security of the vehicles.

Meanwhile, the Government of Odisha has also prepared a draft of its proposed auto component policy to attract

investment in the state. Meticulously prepared, the draft policy envisages a concession of up to 50 per cent on

land to be made available to auto component manufacturers and electricity duty waiver for ten years. The policy

also delineates various fiscal incentives, increased reimbursements capital grants to attract manufacturers to set

up their factories in the state.

Road Ahead

The rapid improvement in infrastructure, huge domestic market, increasing purchasing power, established

financial market etc have made India a favourable destination for investment by global majors in the auto

industry, according to Automotive Mission Plan (AMP - 2006-16).

The vision of AMP 2006-2016 aims India "to emerge as the destination of choice in the world for design and

manufacture of automobiles and auto components with output reaching a level of US$ 145 billion accounting for

more than 10 per cent of the GDP and providing additional employment to 25 million people by 2016."

In addition, the hybrid and electronic vehicles are new developments on the automobile canvas and India is one

of the key markets for them. Global and Indian manufacturers are focussing their efforts to develop innovative

products, technologies and supply chains.

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

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