Sample  Research Report  
 Rane Brake Lining   
Vol. No. : 13    Issue No. : 7                             Wednesday, July 30, 2014

On frictionless growth path

Being a leading player in friction material catering to almost al segments, the company will benefit from recovery in automobile industry

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4Rane Brake Lining: Financials
4Rane Brake Lining: Results

Buy Rane Brake Lining
BSE Code 532987
NSE Code RBL
Bloomberg RABL@IN
Reuter RABL.BO
52-week High/Low Rs 305 / Rs 103
Current Price Rs 244 (as on 30th July 2014)

Rane Brake Lining is engaged in the manufacturing and marketing of safety critical friction material products such as brake linings, disc pads, clutch facings, clutch buttons, brake shoes and railway brake blocks for passenger cars, utility vehicles, commercial vehicles, two wheelers and railways. The company is a market Leader in India and is a reputed exporter of friction products.

The company has its manufacturing units located at Chennai, Hyderabad, Pondicherry and Trichy. The plant at Pondicherry is an exclusive Asbestos Free Facility.

Nisshinbo Holdings Inc holds 20.16% stake in the company

Rane Brake lining (RBL) is a JV with Nisshinbo Brakes for know how in asbestos free brake linings, disc pads and clutch facings. Nisshinbo Holdings Inc holds 20.16% stake in the company. The Indian promoters hold 45.44% stake in the company. Thus, out of the total equity op just Rs 7.91 crore, total promoter’s stake in the company works out to 65.60%.

Nisshinbo Brakes Inc., Japan provides the state-of-the-art technologies for applications in new generation vehicles. Nisshinbo Brakes Inc., Japan is the global leader in friction materials.

Caters to every segment of auto industry

Rane Brake Lining caters to every segment of auto industry such as PC, LCV, UV, SCV, M&HCV, 2W, 3W etc which saves it from the impact of cycles in any particular segment.

Strong domestic and export positioning

Domestically, Rane Brake Lining commands 37% market share in OE, 15% in aftermarket and 15% in railways segment.

Also it is a leader in Passenger Car / Commercial Vehicle / Utility vehicles / Multi Purpose Vehicles, leading supplier of composite brake blocks to Indian Railways, with presence in Passenger, Electrical Multiple Unit (EMU), Freight, Locomotive and Metro Rail. RBL is also the most preferred brand in independent replacement markets as per study conducted by Frost & Sullivan in 2014.

The company exports its products to various countries in Europe, SAARC, Middle East, Far East and Africa and has expanded to Nigeria, Malawi and Ukraine in the Commercial Vehicle segment and Railway Brake Blocks. It is currently also supplying composite brake blocks to Sri Lankan railways and Malaysian railways.

Reputed clientele

RBL has a very reputed clientele through its major Tier 1 customers like Brakes India Limited, Chassis Brakes International, Diesel and Motor Engineering plc, etc. some of the OE customers which RBL caters to through its tier 1 clients are Maruti Suzuki, Toyota, Honda, Nissan, Daimler, Volkswagen, Skoda, Tata Motors, Ashok Leyland and Mahindra & Mahindra.

OPM has decent scope for further improvement

The entire market in brake lining moved from asbestos to asbestos free brake lining market in FY’14. This resulted in increasing the import content in the overall raw material costs and particularly in around July Aug’13, where rupee was more than Rs 65. This impacted sales and margin in FY 2014. While through internal efficiencies and higher after market sales, the margins were better in FY’14 on YoY basis, to around 10.5%.

Already in June 2014 quarter OPM improved by 100basis points from 9.4% to 10.4%.

The management feels that there is scope for further improvement in the same as the company is working on localizing the asbestos free technology which will reduce the import dependency (and the Rupee has appreciated from the July-Aug 2013 levels), thus improving the margins.

Continued focus on various cost reduction initiatives is an ongoing process

Continued focus on various cost reduction initiatives and yield improvement projects helped in controlling material cost. Aggressive cost reduction initiatives, close monitoring and control have helped the company to mitigate incremental cost impact in volatile market conditions.

Sustenance of energy savings initiatives and horizontal deployment of best practices across plants, evaluating and utilizing power from low cost sources helped in reduction of power cost despite increase in EB unit rates. Important highlight of this year 2014 has been the company winning the coveted ‘Deming Grand Prize’ (DGP)-the highest honour for practising Total Quality Management (TQM).

Rane Brake lining is the first company in the world in friction material industry to win this prestigious award.

Management expects exports to rise further; overall performance to improve smartly

Exports constituted around 8% of total RBL sales and management expects the exports will increase further.

The management aims at capex of about Rs 67 crore in next couple of years and sales target of around 22% CAGR for next couple of years.

Outlook

The company’s main areas of strength are State of art R&D and manufacturing facility, in-house formulation development and bench marking capability, operational excellence, preferred supplier for OEMs, strong distribution network, good customer contact and rapport with Tier-1 & vehicle OEM’s, market leadership and brand equity.

The company remains optimistic about the growth of the automotive industry. It is expected that there will be a gradual pick up in momentum in market growth with the formation of a stable government.

The company would continue to take rigorous efforts to retain the market leadership by developing customized products for the customers. With profitable growth continuing to remain the focus area, the company plans to expand its horizons by adding new territories and new customers.

With the hope of good governance by the stable new government, the growth of Indian economy could be back on track to 7-8% levels. This could mean recovery and growth in Automobile industry. If the infrastructure issues like power, roads and ports are addressed and some flexibility in employment is enabled through labour reforms, exports could open up larger opportunities.

FY 2014 was impressive

In FY 2014 quarter sales grew 2% to Rs 384.11 crore. OPM improved 170 basis points and stood at 10.5% against 7.0% which saw OP rising 22% to Rs 40.22 crore. Other income fell 26% to Rs 2.40 crore and interest cost rose 5% to Rs 7.67 crore. After providing for depreciation (up 2% to Rs 18.22 crore), PBT jumped 53% to Rs 16.73 crore. After providing for taxation (write back of Rs 49 lakh against provision of Rs 1.82 crore) PAT soared 89% to Rs 17.21 crore.

June 2014 quarter witnesses overall growth

In June 2014 quarter sales grew 9% to Rs 101.64 crore. OPM improved 100 basis points and stood at 10.4% against 9.4% which saw OP rising 21% to Rs 10.62 crore.

Other income jumped 47% to Rs 32 lakh and interest cost fell 1% to Rs 1.83 crore. After providing for depreciation (up 6% to Rs 4.75 crore), PBT jumped 63% to Rs 4.36 crore. Even as provision for taxation jumped 239% to Rs 78 lakh, PAT grew 46% to Rs 3.58 crore.

Valuation

In FY 2015 we expect the company to register sales and net profit of Rs 438.72 crore and Rs 19.88 crore respectively. On a small equity of Rs 7.91 crore (out of which 65% is owned by Foregin and domestic promoters), EPS works out to Rs 25.1. The share price trades at Rs 244. P/E works out to 9.7.

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Rane Brake Lining: Financials
 
  1103 (12) 1203 (12) 1303 (12) 1403 (12) 1503 (12P)
Net Sales 305.84 359.17 376.44 384.11 438.72
OPM % 11.1 11.0 8.7 10.5 11.1
OP 34.01 39.41 32.83 40.22 48.71
Other income 2.48 4.35 3.24 2.40 2.94
PBIDT 36.49 43.76 36.08 42.62 51.65
Interest 4.43 6.76 7.29 7.67 7.70
PBDT 32.06 37.00 28.79 34.94 43.94
Dep. 12.40 15.10 17.87 18.22 19.71
PBT 19.66 21.90 10.92 16.73 24.23
EO expense 0.00 0.00 0.00 0.00 0.00
PBT after EO 19.66 21.90 10.92 16.73 24.23
Total Tax 4.38 5.71 1.82 -0.49 4.36
PAT 15.28 16.19 9.10 17.21 19.88
EPS* 19.3 20.4 11.5 21.8 25.1
*Annualised on current equity of Rs 7.91 crore ;
Face value of Rs 10 each
EO: Extraordinary items
EPS is adjusted for EO and relevant tax
(P): Projections
Figures in crore,
Source: Capitaline Databases

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Rane Brake Lining: Results
 
  1406 (3) 1306 (3) Var. (%) 1403 (12) 1303 (12) Var. (%)
Sales 101.64 93.52 9 384.11 376.44 2
OPM (%) 10.4 9.4   10.5 8.7  
OP 10.62 8.80 21 40.22 32.83 22
Other inc. 0.32 0.22 47 2.40 3.24 -26
PBIDT 10.94 9.02 21 42.62 36.08 18
Interest 1.83 1.86 -1 7.67 7.29 5
PBDT 9.11 7.16 27 34.94 28.79 21
Dep. 4.75 4.49 6 18.22 17.87 2
PBT before EO 4.36 2.67 63 16.73 10.92 53
EO 0.00 0.00 -- 0.00 0.00 --
PBT after EO 4.36 2.67 63 16.73 10.92 53
Total Tax 0.78 0.23 239 -0.49 1.82 -127
PAT 3.58 2.44 46 17.21 9.10 89
EPS (Rs) * 18.1 12.4   21.8 11.5  
*Annualised on current equity of Rs 7.91 crore ;
Face value of Rs 10 each
EO: Extraordinary items
EPS is adjusted for EO and relevant tax
(P): Projections
Figures in crore,
Source: Capitaline Databases

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