Sample  Research Report  
 Rane Brake Lining   
Vol. No. : 21    Issue No. : 50                             Friday, October 23, 2015

Profits on a fast ride

Revival in auto industry together with various initiatives by the company to improve margin, are resulting in higher earnings growth

Related Tables
4Rane Brake Lining : Financials
4Rane Brake Lining : Results

Buy Rane Brake Lining
BSE Code 532987
BSE Group B
NSE Code RBL
ISIN Demat INE244J01017
Bloomberg RABL@IN
Reuters RABL.BO
Par Value Rs 10
52-week High/Low Rs 406 / Rs 206
Current Price Rs 315 (as on 23rd October 2015)

Rane Brake Lining, is a leading manufacture of Brake Linings, Clutch facings, clutch buttons, brake shoes, railway brake blocks and Disc pads for passenger cars, utility vehicles, commercial vehicles, two wheelers and railways.

The company has technology collaboration with Nisshinbo Brakes Japan (which also holds 20.15% equity stake) since 1985, for know how in asbestos free brake linings and disc pads.

Key braking components ie brake lining and disc pads constitute bulk of the revenues (approximately 87%) for the company. The products are manufactured across four plants based in South India.

Marquee list of customers

Almost every passenger car, utility and CV manufacturer is a customer of the company.

Major Tier 1 customers in India include Brakes India, Brembo, Mando, Chassis brakes international, Endurance, Maruti, Toyota, Honda, Nissan, Daimler, Skoda, Ashok Leyland, Mahindra, Tata etc.

Major OE customers in after markets include JMA, George Oakes, Dimo, Partapsing and Sons, Speed-Pvt ltd etc.

Leader in Passenger car, commercial vehicle, utility vehicles and multipurpose vehicles

RBL is a Domestic Market Leader in brake lining and disc pads with about 38% market share in OE, about 18% in after market and about 13% in Railways. Company’s products have application in every segment of automobile industry such as PCV, MPV, MUV, UV, LCV, M&HCV, 2W/3W etc.

About 33% of its revenues come from passenger car segment, 39% from M&HCV segment, 9% from MUV, 7% from Railways and rest from 2W/3W, tractors and SCV segments. From markets prospective, about 47% of total sales come from OE, 36% from aftermarket, 7% from exports and rest from OES and other segments.

The company has created a strong position in the Passenger Car and Commercial Vehicle segment apart from traditional strength in aftermarket segments.

Improved economic growth, further easing of interest rates, lower fuel prices and low base during the recent slowdown period would lead to an OEM up cycle in H2 FY’16 and going forward. RBL, with its market leadership and well established client base, would reap benefits from an anticipated upsurge in demand. Further, RBL’s strategy to enhance its distribution network in underpenetrated Northern and Eastern markets and to introduce new products is likely to boost its aftermarket revenues. RBL is likely to outpace the industry and further augment its share in the aftermarket segment.

The Passenger car and Multi Utility vehicles segment grew steadily in Q2 FY’16, which was driven by new vehicle launches and improved market sentiments. M&HCV segment grew robustly in Q2 FY’16, while LCV grew marginally and SCH segment saw a negative growth. In this period, net sales of the company grew by about 9% to Rs 109.34 crore. Sales to domestic OEM and aftermarket grew by about 16% and 9% respectively whereas sales to Railways was lower by 17% as compared to same period last year. For 6 months ended Sep’15, net sales grew by 6% to Rs 212.96 crore.

Margins will improve further

Imported raw material currently forms about 48% of the material costs. The company already is working on localization of raw materials and aims to bring the ratio to under 40% in next couple of years.

Further, RBL is also working towards reducing its energy costs by implementing best practices across manufacturing plants and utilizing power from low cost sources.

All these efforts, together with lower raw material costs and advantage of economies of scale, will aid in improving margins further. For Q2 FY’16, the OPM stood at 9.9%, up by 210 bps on YoY basis, resulting in higher OP by 39% to Rs 10.82 crore. For 6 months ended Sep’15, OPM stood at 10.3%, up by 120 bps YoY and OP thus, was up by 19% to Rs 21.93 crore YoY.

Exports will increase

Exports account for about 7% of total sales. The company’s products are supplied to various countries in EU, Saars, Middle East, Far East and Africa. The company also expanded to Nigeria, Malawi, Ukraine markets in FY 2015.

Company is negotiating with various international OE players for long term contracts for brake lining segment.

Financials will improve further

For quarter ended Sep’15, the company reported net sales growth of 9% to Rs 109.34 crore with OPM of around 9.9% thus resulting in OP of Rs 10.82 crore. Other income was lower by 60% to Rs 0.43 crore. With interest cost being down by 31% to Rs 1.09 crore and flat depreciation of Rs 4.75 crore, PBT stood at Rs 5.41 crore, up by 113% YoY. After providing total tax of Rs 1.52 crore, up by 88%, PAT for June’15 stood at Rs 3.89 crore, up by 125% YoY.

For 6 months ended Sep’15, net sales grew by 6% to Rs 212.96 crore and OPM stood at 10.3% resulting an increase of 10% in OP. Other income was lower by 22% to Rs 1.08 crore. Interest costs and depreciation were lower by 38% and 1% respectively to Rs 2.10 crore and Rs 9.42 crore. After proving total tax of Rs 3.06 crore, up by 92% YoY, PAT for 6 months ended Sep’15 stood at Rs 8.43 crore, up by 59% YoY.

Valuation

For FY’16, we expect the company to report net sales and PAT of Rs 449.23 crore and Rs 21.50 crore. This gives an EPS of Rs 27.1 for FY’16. Current market price of Rs 315 discounts FY’16 projected earnings by 11.6 times.

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Rane Brake Lining : Financials
 
  1103(12) 1203 (12) 1303(12) 1403(12) 1503(12) 1603(12P)
Net Sales 305.84 359.17 376.44 384.11 416.41 449.23
OPM % 11.1% 11.0% 8.7% 10.5% 10.9% 11.7%
OP 34.01 39.41 32.84 40.22 45.49 52.64
Other income 2.48 4.35 3.24 2.40 2.08 1.68
PBIDT 36.49 43.76 36.08 42.62 47.57 54.32
Interest 4.43 6.76 7.29 7.67 6.02 4.06
PBDT 32.06 37.00 28.79 34.94 41.55 50.27
Depreciation 12.40 15.10 17.87 18.22 20.95 20.88
PBT 19.66 21.90 10.92 16.73 20.60 29.39
EO expense 0.00 0.00 0.00 0.00 0.00 0.00
PBT after EO 19.66 21.90 10.92 16.73 20.60 29.39
Total Tax 4.38 5.71 1.82 -0.48 4.50 7.89
PAT 15.28 16.19 9.10 17.21 16.10 21.50
EPS* 19.3 20.4 11.5 21.7 20.3 27.1
*EPS is on current equity capital of 7.92 crore Face value of Rs 10 each
(P) Projections
Figures in Rs crore
Source: Capitaline Corporate Databases

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Rane Brake Lining : Results
 
  1509(03) 1409(03) Var % 1509(06) 1409(06) Var % 1503(12) 1403(12) Var %
Net Sales 109.34 99.98 9 212.96 201.62 6 416.41 384.11 8
OPM (%) 9.9% 7.8%   10.3% 9.1%   10.9% 10.5%  
OP 10.82 7.79 39 21.93 18.41 19 45.49 40.22 13
Other income 0.43 1.07 -60 1.08 1.39 -22 2.08 2.40 -13
PBIDT 11.25 8.86 27 23.01 19.80 16 47.57 42.62 12
Interest 1.09 1.58 -31 2.10 3.41 -38 6.02 7.67 -22
PBDT 10.16 7.28 40 20.91 16.39 28 41.55 34.94 19
Depreciation 4.75 4.74 0 9.42 9.49 -1 20.95 18.22 15
PBT 5.41 2.54 113 11.49 6.90 67 20.60 16.73 23
EO 0.00 0.00 0 0.00 0.00 0 0.00 0.00 0
PBT after EO 5.41 2.54 113 11.49 6.90 67 20.60 16.73 23
Tax 1.52 0.81 88 3.06 1.59 92 4.50 -0.48 LP
PAT 3.89 1.73 125 8.43 5.31 59 16.10 17.21 -6
EPS* # #   # #   20.3 21.7  
*EPS is on current equity capital of 7.92 crore Face value of Rs 10 each
# EPS has not been calculated since the business is seasonal in nature
LP: Loss to Profit, PL: Profit to Loss
Figures in Rs crore
Source: Capitaline Database

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