Sample  write-ups  
 PPAP Automotive   
Vol. No. : 15    Issue No. : 27                             Wednesday, December 14, 2016

Driving safely

The company supplies mainly to Indian passenger car industry which is least affected by demonitisation

Related Tables
4PPAP Automotive: Financials
4PPAP Automotive: Results

Idea  PPAP Automotive
BSE Code 532934
BSE Group B
NSE Code PPAP
ISIN Demat INE095I01015
Bloomberg PPAP@IN
Reuters PPAP.BO
Par Value Rs 10
52-week High/Low Rs 205 / Rs 109
Current Price Rs 157 (as on 14th December 2016)

Established in 1978, PPAP Automotive is a leading manufacturer of Automotive Sealing Systems, Interior and Exterior Injection Molded Products.

The company’s Automotive Sealing products are used to seal the vehicle body and glass from noise, dust and water. These products are made from either plastic extrusion or through injection molding.

In injection molding, PPAP Automotive has the best injection molding machines to manufacture both gas assist as well as non-gas type injection molded parts. The company has capability of processing engineering plastics like PVC, PP, AES, PBT, POM and TPO. The products include Quarter Window Seal, A- Pillar Garnish and C-Pillar Garnish.

The company has a technical collaboration with Tokai Kogyo Co. Ltd, Japan and Nissen Chemitec Corporation, Japan to develop automotive products.

95% of company’s sales come from sales to Indian passenger car industry

Around 95% of total sales of the company comes from Indian passenger car industry. Rest comes from sales to LCV segment and others. There are no direct exports, but the company does indirect exports by selling its products to OE clients, which in turn export their vehicles. Indirect exports account for around 8% of total sales of the company.

The passenger car industry in India is on a strong wicket. Besides domestic market, many MNC auto majors are also setting up plants to meet global requirements. Overall due to under-penetration, favourable demography, poor public transport, and increasing income levels, passenger car industry will gradually pick up speed especially as cut in interest rates is expected to continue in future.

The company’s Exterior / Interior Products are used to enhance the aesthetics of the vehicle as well as to prevent the body from damage. Some of the products are also used to enhance the aerodynamics of the car by reducing air drag on the body of the car at high speeds. In plastic extrusion, the products include Skirt Air damper as well as body side moldings. In injection molding, the products include body side moldings along with other interior products.

PPAP Automotive offers its customers a complete package of products and services using its state-of-the-art design/development centre furnished with high end design and validation software, most sophisticated tool room equipped with latest CNC machinery, manufacturing facilities with high level of automation, latest Quality management techniques and installed ERP systems.

Joint Venture to manufacture Rubber Extrusion Products and TPO Glass Run Channel

PPAP Automotive also has a Joint Venture with Tokai Kogyo Co. Ltd, Japan for manufacturing EPDM Rubber based Automotive System with products like Opening Trims, Hood Seals, Door Weatherstrip and TPV Glass Run Channels.

The company through this Joint Venture, utilises the Rubber (Metal and Non-Metal) and TPO (Glass Run Channel) Extrusion technology for making the Automotive Sealing Extruded Parts. Now, the company has all the technologies to cater the complete demand of all auto customers for the Sealing System parts.

Long list of reputed clients which keeps on increasing every year

PPAP is the major supplier to major automotive manufacturers in India. Some of its prestigious clients are Maruti Suzuki India Limited, Honda Cars India Limited, General Motors India Private Limited, Toyota Kirloskar Motor Private Limited, Renault Nissan Automotive India Private Limited, Tata Motors Limited, Ford India Private Limited and Mahindra and Mahindra Limited. The company also caters to the requirements of their respective Tier 1 suppliers.

The company is key supplier to every new model or variants launched by the Indian passenger car OE customers. Some of the new models launched in past 12 months to which the company is a major supplier includes Kwid, Baleno, Innova variant, Ignis, Vittara, Brezza, Baleno RS, S Cross, Honda City automatic variant, Honda Jazz etc.

The company also started supplying to Kwid for export market in FY’17. The company also added SML Isuzu to its list of customers in FY’17 for their new variants in LCV segment. The company is also supplier to the LCV model of MSIL which will be launched by end of FY’17.

Continuous improvements in production machinery, production methods, quality control systems, raw materials, packaging and information technology tools have helped PPAP Automotive maintain quality and service at par with other world class automotive suppliers and the company has been rewarded with the ‘Best Vendor Award’ from Maruti Suzuki India, Honda, TS-Techsun, Honda Motorcycle & Scooter India.

Maruti and Honda cars India ltd constitute around 45% and 39% of total sales. Tata Motors, M&M, Toyota Kirloskars, Nissan, General Motors etc constitute the rest. The company also has tied up for all the new model launches of these players.

The company is trying very hard for Hyundai Motors’ business. In fact it go the breakthrough for small orders for supply to Hyundai I10 model for exports and local market, the sales of which are expected in Mar’17 quarter.

The company is actively working for M&M for their passenger cars sealing products and molding requirements, and is hopeful of getting some breakthrough. Similarly, the company is also in talks with Suzuki for their Gujarat plant and expects to see some concrete plans by the end of FY’17.

Overall, FY'17 will be an exciting year, as most of the vendors have planned face lifting of existing models and new launches

The company is also evaluating and in talks with many other major customers for their orders particularly MNC Auto OEM’s which are establishing their base in India, in line with the Make in India concept. The company expects few more MNC Auto OEM’s to join its client list by end-FY’17.

Continuous introduction of new products

The company's core competence is in Polymer Extrusion based Automotive Sealing System and Injection Molded products. Over the years, PPAP has been continuously adding more and more products to its product range.

Company has a dedicated team of 40 specialists exclusively placed for Research and Development activities, which are implementing all the Japanese technology so as to bring in maximum output at least costs. Localization is the mantra on which the entire research and invention is being carried out.

The company has successfully manufactured over 550 different products for its customers and continuously targets to achieve zero ppm in Quality and Delivery performance for all its customers.

Over the years, PPAP has developed strong technology alliances with Japanese companies in order to cater to the ever increasing demands of its prestigious customers. The company's key focus is on delighting the customer's through continuous up gradation of its products and services.

Currently the company is producing products for 12 new models which will be launched over next 2 years by its customers.

Ready capacities available for future growth

The company has state of art manufacturing facilities located at Noida, Greater Noida, Chennai and Rajasthan, all at strategic locations near its clientele so as to serve them better.

Over the past 3 years, the company has invested more than Rs 70 crore in increasing the capacities for future growth. The company currently is operating at around 75% capacity utilization, all 4 plants put together.

The Chennai facility is upgraded further; to tap the new business from Kirloskar and Hyundai customers for which capex of around Rs 25 crore, all from internal accruals, will be spent by FY’17-end.

All the plants along with Chennai facility can generate annual net sales of around Rs 500 crore by optimizing the capacity utilization of all these plants.

The company has plans to convert the Chennai facility which is only an assembly facility currently to a full fledged automation plant, which would require another capex of around Rs 25 crore, the capex would depend upon the demand and any significant orders from both existing and newer clients.

Debt Equity Ratio will improve

Total debt of the company stands around Rs 80 crore with about Rs 20 crore of long term and rest short term with average interest costs around 11.4%.

Given the inbuilt capacities and with capex from internal accruals, going forward in next 3 years, the debt will remain same, although long term will come down and short term will increase due to increasing working capital, in line with increase in sales.

Current debt equity ratio is at 0.31 as on Sep’16, which is expected to improve further.

Earnings continue to grow

For the quarter ended Sep’16, net sales were up by 2% on YoY basis and stood at Rs 81.97 crore. OPM was higher by 30 bps to 8.5%, thus leading to an OP growth of 3% to Rs 15.15 crore.

Other income was up by 65% to Rs 0.33 crore. Interest costs was lower by 33% to Rs 1.43 crore and depreciation costs were up by 4% to Rs 6 crore. Thus, PBT was higher by 16% to Rs 8.05 crore. After providing total tax of Rs 2.78 crore, up by 16%, PAT for Sep’16 quarter stood at Rs 5.27 crore, up by 16% YoY.

For the 6 months ended Sep’16 net sales was up by 6% to Rs 162.96 crore. OPM was lower by 50 bps to 17% restricting the OP growth to 3%. Other income was up by 60% to Rs 0.69 crore. Interest cost was lower by 30% to Rs 3.07 crore and depreciation was higher by 5% to Rs 12 crore. Thus, PBT was up by around 16% to Rs 13.39 crore. After providing for a total tax of Rs 4.56 crore, up by 14%, PAT for 6 months ended Sep’16 stood at Rs 8.83 crore, up by 17% on YoY basis.

Demonitisation will have least impact on car sales

As car sales are largely financed and paid for through banking channels, demand for cars has been least affected by withdrawal of high denomination currencies. Moreover the largest player Maruti has long waiting periods for Brezza and Baleno and it has just to supply to demand already booked. Other car makes like Tata Motors are also enjoying strong demand for their new models.

Once the short-term sentiments improve after December, car sales will be the first to pick up on the back of lower interest rates and payouts from the Seventh Pay Commission.

Valuation

For FY’17, we expect the company to report net sales and PAT of Rs 339.08 crore and Rs 19.54 crore respectively. This gives an EPS of Rs 14. At current market price of Rs 157, the scrip is trading at around 11.2 times its expected FY’17 earnings.

Book value of the company as on Sep’16 stood at Rs 157 per share.

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PPAP Automotive: Financials
 
  1203 (12) 1303 (12) 1403 (12) 1503 (12) 1603 (12) 1703(12P)
Sales 184.64 215.43 246.75 318.50 302.75 339.08
OPM (%) 16.4 7.2 11.3 12.7 17.2 17.3
OP 30.37 15.58 27.80 40.40 52.06 58.66
Other inc. 2.76 0.15 8.49 4.14 1.31 1.64
PBIDT 33.13 15.74 36.30 44.50 53.37 60.30
Interest 0.27 1.14 3.04 7.13 7.84 7.45
PBDT 32.86 14.59 33.24 37.38 45.53 52.85
Dep. 18.08 18.11 19.75 21.54 22.76 23.90
PBT 14.78 -3.52 13.49 15.84 22.77 28.95
EO 0.67 4.10 -5.46   0.00 0.00 0.00
PBT after EO 15.45 0.58 8.03 15.84 22.77 28.95
Total Tax 2.56 -0.96 2.56 3.80 7.50 9.41
PAT 12.89 1.54 5.47 12.04 15.27 19.54
EPS (Rs) * 8.8 - 6.6 8.6 10.9 14.0
* on equity of Rs 14.00 crore: Face value of Rs 10 each
EO: Extraordinary items
EPS is adjusted after EO and relevant tax
(P): Projections
Figures in crore,
Source: Capitaline Databases

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PPAP Automotive: Results
 
  1609(03) 1509(03) Var. (%) 1609(06) 1509(06) Var. (%) 1603 (12) 1503 (12) Var. (%)
Net Sales 81.97 80.67 2 162.96 153.91 6 302.75 318.50 -5
OPM(%) 18.5 18.2 17.0 17.5    17.2 12.7   
OP 15.15 14.66 3 27.77 26.94 3 52.06 40.40 29
Other Income 0.33 0.20 65 0.69 0.43 60 1.31 4.14 -68
PBIDT 15.48 14.86 4 28.46 27.37 4 53.37 44.5 20
Interest 1.43 2.15 -33 3.07 4.4 -30 7.84 7.13 10
PBDT 14.05 12.71 11 25.39 22.97 11 45.53 37.38 22
Depreciation 6.00 5.77 4 12.00 11.45 5 22.76 21.54 6
PBT Before EO 8.05 6.94 16 13.39 11.52 16 22.77 15.84 44
EO 0.00 0.00 0 0.00 0.00 0 0.00   0.00 0
PBT after EO 8.05 6.94 16 13.39 11.52 16 22.77 15.84 44
Tax provision^ 2.78 2.40 16 4.56 4.00 14 7.50 3.80 97
PAT 5.27 4.54 16 8.83 7.52 17 15.27 12.04 27
EPS* # #    # #    10.9 8.6   
* Annualized On Current Equity Of Rs 14 Crore of face value of Rs 10 each
# EPS not annualized due to seasonality of business
EO: Extraordinary Items
EPS Is Calculated After Excluding EO And Relevant Tax
Figures In Rs Crore
Source: Capitaline Database

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