1

SYNOPSIS

Kirloskar Pneumatic Co. Ltd. (KPCL),

part of the Kirloskar Group is a

synonym for providing integrated

solutions using Compression and

Transmission Technologies.

During the quarter ended, the robust

growth of Net Profit is increased by

44.79% to Rs. 115.40 million.

KPCL has decided to increase the

Authorised Share Capital of the

Company from Rs. 15 Crores to Rs.

40 Crores subject to the requisite

approval of the shareholders.

KPCL is one of the core group

companies certified with an ISO

9001:2000, ISO 14001:2004, OHSAS

18001:2007 Company.

Net Sales and PAT of the company

are expected to grow at a CAGR of

20% and 21% over 2010 to 2013E

respectively.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 4917.30 782.90 439.10 34.20 14.16

FY 12E 6633.90 1148.15 721.79 56.21 8.61

FY 13E 7761.66 1320.10 839.26 65.36 7.41

Stock Data:

Sector: Auto Component

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 600.15/375.10

Volume (2 wk. Avg.) 14000

BSE Code 505283

Market Cap (Rs in mn) 6216.49

Share Holding Pattern

1 Year Comparative Graph

BSE SENSEX Kirloskar Pneum.

C.M.P: Rs. 484.15 Target Price: Rs. 547.00 Date: March. 02nd 2012

BUY

Kirloskar Pneumatic Co. Ltd Result Update: Q3 FY 12

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Peer Group Comparison

Name of the company CMP(Rs.) Market Cap. (Rs. mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Kirloskar Pneumatic Co 484.15 6216.49 34.20 14.16 3.35 120.00

Amara Raja Batteries 288.55 2464.40 20.09 14.36 3.82 230.00

Bosch Ltd. 7640.55 23990.49 335.03 22.81 5.85 400.00

Lumax Industries Ltd. 403.00 376.71 11.42 35.29 2.57 60.00

Investment Highlights

Q3 FY12 Results Update

Kirloskar Pneumatic Co. Ltd. has reported net profit of Rs 115.40 million for the

quarter ended on December 31, 2011 as against Rs. 79.70 million in the same quarter

last year, an increase of 44.79%. It has reported net sales of Rs 1364.00 million for the

quarter ended on December 31, 2011 as against Rs 977.10 million in the same

quarter last year, a rise of 39.60%. Total income grew by 39.73% to Rs 1393.50 million

from Rs.997.30 million in the same quarter last year. During the quarter, it reported

earnings of Rs 8.99 a share.

Quarterly Results - Standalone (Rs in mn)

As At Dec-11 Dec-10 %change

Net sales 1364.00 977.10 39.60%

PAT 115.40 79.70 44.79%

Basic EPS 8.99 6.21 44.79%

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Break up of Expenditure

Segment Revenue

Particulars Q3 FY12 (Rs. in mn)

Compression Systems 1166.50

Transmission Products 197.50

Total 1364.00

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Company Profile

Kirloskar Pneumatic Company Ltd. (KPCL), part of the Kirloskar Group is a synonym for

providing high end integrated solutions using Compression & Transmission Technologies.

KPCL was incorporated in 1958. Its diversified solutions portfolio caters to the needs of

industries like Petrochemicals, Power, Steel, Cement, Food & Beverage, Defense,

Construction & Mining and many more.

Kirloskar Pneumatic Company Ltd (KPCL) is one of the core group companies, an ISO

9001:2000, ISO 14001:2004, OHSAS 18001:2007 Company,.

The company started its operations with the manufacture of Air Compressors and

Pneumatic Tools. New product lines were then 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.

Business Areas

Air Compressor Division

ACD offers a wide range of air compressors in 15 product categories. 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.

These are sub divided in four categories –

� Reciprocating compressors,

� Screw compressors,

� Centrifugal compressors &

� Ground Support Units (GSU)

ACD products are primarily sold and serviced through four regional offices and three

branch offices in India and supported by 29 authorized dealers. \

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Air Conditioning, Refrigeration & Process Gas Division (ACR & PG)

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, Containerized 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).

The Projects sub division undertakes turnkey projects where the scope includes

planning, designing, manufacturing, installing and commissioning of Refrigeration

Systems and Process Gas Systems (PGS).

ACR & PG products, including compressors and spares, are marketed and serviced

through 27 authorized dealers from across the world. Their sales and service is

monitored and supported by 3 Regional Offices, 4 Branch Offices and 4 overseas

offices.

Transmission Division (TRM)

TRM 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.

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Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY10 FY11 FY12E FY13E

Description 12m 12m 12m 12m

Net Sales 4532.80 4917.30 6633.90 7761.66

Other Income 99.70 96.10 132.22 148.09

Total Income 4632.50 5013.40 6766.12 7909.75

Expenditure -3858.10 -4230.50 -5617.97 -6589.65

Operating Profit 774.40 782.90 1148.15 1320.10

Interest -18.60 -18.70 -14.04 -14.75

Gross profit 755.80 764.20 1134.11 1305.35

Depreciation -73.50 -113.30 -117.60 -124.66

Profit Before Tax 682.30 650.90 1016.50 1180.69

Tax -206.60 -215.90 -294.51 -341.22

Profit After Tax 475.70 435.00 721.99 839.47

Extraordinary Items 3.30 4.10 -0.20 -0.21

Net Profit 479.00 439.10 721.79 839.26

Equity capital 128.40 128.40 128.40 128.40

Reserves 1469.00 1729.00 2450.99 3290.46

Face value 10.00 10.00 10.00 10.00

EPS 37.31 34.20 56.21 65.36

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12E

Description 3m 3m 3m 3m

Net sales 2120.10 1240.20 1364.00 1909.60

Other income 26.40 42.10 29.50 34.22

Total Income 2146.50 1282.30 1393.50 1943.82

Expenditure -1734.40 -1104.70 -1193.90 -1584.97

Operating profit 412.10 177.60 199.60 358.85

Interest -3.30 -3.60 -3.80 -3.34

Gross profit 408.80 174.00 195.80 355.51

Depreciation -27.30 -28.40 -29.20 -32.70

Profit Before Tax 381.50 145.60 166.60 322.80

Tax -121.30 -28.40 -51.20 -93.61

Profit After Tax 260.20 117.20 115.40 229.19

Extraordinary Items 0.00 -0.20 0.00 0.00

Net Profit 260.20 117.00 115.40 229.19

Equity capital 128.40 128.40 128.40 128.40

Face value 10.00 10.00 10.00 10.00

EPS 20.26 9.11 8.99 17.85

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Key Ratios

Particulars FY10 FY11 FY12E FY13E

No. of Shares (in mn) 12.84 12.84 12.84 12.84

EBITDA Margin (%) 17.08% 15.92% 17.31% 17.01%

PBT Margin (%) 15.05% 13.24% 15.32% 15.21%

PAT Margin (%) 10.49% 8.85% 10.88% 10.82%

P/E Ratio (x) 12.98 14.16 8.61 7.41

ROE (%) 29.78% 23.42% 27.99% 24.55%

ROCE (%) 44.68% 43.88% 45.64% 39.88%

Debt Equity Ratio 0.19 0.10 0.08 0.06

EV/EBITDA (x) 8.03 7.94 5.41 4.71

Book Value (Rs.) 124.41 144.66 200.89 266.27

P/BV 3.89 3.35 2.41 1.82

Charts:

Net sales & PAT:

9

P/E Ratio(x):

Debt Equity Ratio:

10

EV/EBITDA(x):

P/BV:

11

Outlook and Conclusion

� At the current market price of Rs.484.15, the stock is trading at 8.61 x FY12E

and 7.41 x FY13E respectively.

� Earning per share (EPS) of the company for the earnings for FY12E and FY13E

is seen at Rs.56.21 and Rs.65.36 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 20% and

21% over 2010 to 2013E respectively.

� On the basis of EV/EBITDA, the stock trades at 5.41 x for FY12E and 4.71 x for

FY13E.

� Price to Book Value of the stock is expected to be at 2.41 x and 1.82 x

respectively for FY12E and FY13E.

� We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.547.00 for Medium term investment.

Industry Overview

Indian auto component industry is robustly driven by the growth in demand for

automobiles. The sector has become a lucrative business proposition for global players,

majorly owing to two factors. First, needless to say, the demand for automobiles is

increasing day by day in the country. India, a market with high potential for the

automobiles sector, is expected to witness a three-fold increase in demand for

automobiles by 2020. Secondly, all major global auto-makers are establishing their bases

here due to highly positive business environment, favourable policies and government

support.

According to a study by UK-based global financial advisory firm-Rothschild, India would

become the third largest auto industry by volumes after China and the US by 2015. This

would give immense support to the growth of ancillary sector as well.

Major developments, investments and Government initiatives relating to the sector are

discussed hereafter.

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Indian Auto Components Industry Profile

According to a recent study by the Automotive Component Manufacturers' Association of

India (ACMA), original equipment manufacturers (OEMs) account for 41 per cent of the

auto components consumed in the Indian aftermarket.

The study estimated current size of Indian components business at Rs 24,800 crore (US$

4.87 billion), 49.7 per cent of which is formed by two-wheeler segment. Passenger

vehicles, commercial vehicles and three-wheelers follow with 24.7 per cent, 23.1 per cent

and 2.5 per cent of the share respectively.

According to Arvind Kapur, President, ACMA, a large market in Indian spares business is

dominated by organised, semi-organised and a number of small, unorganised players. He

thus acknowledged the need for a process of accreditation to ensure better customer

service.

The study further projected that OEM-authorised network of service stations would

account for 20-30 per cent of the Indian auto components market by 2017 while that of

multi-brand organised service chains would grow to 5-10 per cent from 1-2 per cent.

Similarly semi-organised service centres’ and unorganised garages’ market share would

be 20-30 per cent and 45-55 per cent, respectively, in 2017.

India – The Global Auto Hub

Canada is looking for substantial investment opportunities in Indian auto components

market through the comprehensive economic partnership agreement which is being

discussed and negotiated by the two Governments. The agreement is likely to get finalised

by 2013. If fructified, the agreement would facilitate an annual increase of economic

output in two countries by almost US$ 6 billion & boost the two-way trade by 50 percent.

UK sees immense potential in the Indian auto ancillary sector, especially in the city of

Rajkot as it is known for auto components manufacturing. Peter Beckingham, British

Deputy High Commissioner for Western India, also indicated possible ventures between

UK and Rajkot companies in near future. According to industry sources, Rajkot's auto

component industry, with over 500 manufacturers aggregating a net turnover of around

Rs 1,500 crore (US$ 294.5 million), grows at an annual rate of 15-20 per cent.

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Furthermore, 60 French automobile component suppliers are contemplating on business

opportunities to set up a vendor park near Sanand in Ahmedabad district. The proposed

vendor park would accommodate tier-1 and tier-2 auto-component suppliers who would

supply spares to the recent auto entrants in the State and even to others.

Sanand is already home to a number of global auto-makers, like Ford and Peugeot.

Indian Auto Components Industry: Key Developments and Investments

Global private equity (PE) firm Actis PE has bought 10-13 per cent stake in Indian auto

component manufacturer Endurance Technologies for about US$ 71 million. Endurance

Technologies is a part of the automotive component major Endurance Group and caters

to companies like Bajaj, Yamaha, Suzuki, Honda Motorcycles and Scooters and Royal

Enfield. Global car makers such as Daimler, Audi, Fiat and Porsche are the company's

customers in passenger car segment.

German auto component maker Schaeffler Group is on an expansion spree in India. The

company plans to invest over Rs 1,000 crore (US$ 196 million) during 2012-15 in the

country to set up a manufacturing facility and to expand its existing plants. To support

its growth, the company would also double the number of its engineers and recruit 1, 200

employees in the country.

Federal-Mogul's new facility in Chennai will commence its operations by March 2012. The

plant, being set up for producing braking and friction materials, will initially focus on

after market products like linings and brake pads. Federal Mogul is a global automotive

components manufacturer.

Government Initiatives

The Government of India is in the process of forming a National Automotive Board (NAB)

which would become a formal set-up to look into the issue of recall of vehicles and hence

improve manufacturing standards. The prospective body, to oversee technical and safety

aspects of vehicles, will have representatives from all the nodal ministries and automotive

bodies such as the Automotive Research Association of India (ARAI).

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The Government of Gujarat has always been on a high to promote its industrial space

especially it's the automobile sector. In order to boost the State Government's efforts in

this regard, Gujarat Government's Industrial Extension Bureau, along with Automotive

Components Manufacturers Association, French Vehicles Equipment Industries (FIEV)

and French auto-major Peugeot, organised a seminar and business meeting on January

9, 2011 wherein 60 French automobile component makers were briefed on opportunities

to set up vendor park near Sanand (Gujarat's auto hub) in Ahmedabad district.

Similarly, the Government of Gujarat has also announced its plan to disburse 240 acres

of land at Sanand to the All India Plastic Manufacturers Association (AIPMA) to set up a

plastic park that could attract an investment of about Rs 5000 crore (US$ 981.65

million). The Government's move marks its eye for detail as the measure has come in the

light of the fact that a finished car would require about 150 kgs of plastic.

Road Ahead

Ratings agency Fitch has maintained a stable outlook towards the Indian auto

components industry for the year 2012. The industry is expected to perform well owing to

OEM’s robust demand for localised spares.

According to a report by ACMA, the Indian auto component industry would garner US$

113 billion of turnover by 2020-21, growing at a compounded annual growth rate (CAGR)

of 11 per cent through 2011-21. Not only domestic demand, India is poised to scale new

heights in terms of exports as well as the report estimates exports to be worth US$ 29

billion by 2020-21, growing at a CAGR of 18.8 per cent through the forecast period.

_____________ ____ _________________________

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.

15

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