Nov 10, 2016

Industrials - Capital Goods SML ISUZU Ltd

Company Update SML ISUZU Ltd

Bloomberg Code: SM IN

India Research - Stock Broking

HOLD
Weak Quarter Due to Seasonality, Still Maintains Growth Recommendation (Rs.)
SML posted revenue of Rs. 3046Mn in Q2FY17 down by 34.2% QoQ and up by CMP (as on Nov 09, 2016) 1251
13.3 % YoY driven by volume movement of (30.0%) QoQ/12.7% YoY and realization Target Price 1350
de-growth of 6.1% QoQ and +0.6% YoY. EBITDA margins declined by 730bps QoQ Previous Target Price 1497
to 5.2% during Q2FY17 from 12.5% during Q1FY17 impacted by revenues and Upside (%) 8
fixed costs effect, while raw material costs remained flattish as compared to the
Stock Information
previous quarter. We attribute this to seasonality sales effect; however, H1FY17
Mkt Cap (Rs.mn/US$ mn) 18107 / 272
sales volumes posted 8320 vehicles (2.0% less than our estimates) as compared
to 6852 vehicles in H1FY16 registering 21.4% growth. PAT obviously changed by 52-wk High/Low (Rs.) 1434 / 639

(76.4%) QoQ/+52.4% YoY with PAT margin of 3.2% in Q2FY17 as compared to 3M Avg. daily volume (mn) 0.1
2.4% in Q2FY16. Beta (x) 1.3
Sensex/Nifty 27340 / 8432
Increase in market share in all commercial vehicle categories: The overall
O/S Shares(mn) 14.5
domestic commercial vehicle industry grew at 6.0% clocking 333431 vehicles during
Face Value (Rs.) 10.0
H1FY17 as compared to 314595 in H1FY16. All the categories witnessed growth
except the MHCV good segment which fell by 2.3% during the time. However, SML Shareholding Pattern (%)
has posted double digit growth in all domains thus improving their market share in Promoters 44.0
all categories where there was a 100bps increase in LCV passenger share from FIIs 0.8
7.4% in H1FY16 to 8.4% in H1FY17 majorly driven by their Q1FY17 performance. DIIs 17.7
Tweaking estimates on account of dull Q2FY17 than expected: We reduce Others 37.6
our earnings estimates by (2.9%) downside in FY17E and (8.6%) in FY18E as
Stock Performance (%)
Q2FY17 recorded sales volumes below our estimates coupled with reduction in
1M 3M 6M 12M
realizations. We now expect revenues to grow at CAGR of 14.6% during FY16-18E
Absolute (1) (6) 18 1
purely driven by volume growth as we believe their product development initiatives
Relative to Sensex 2 (4) 11 (4)
would have taken shape by then. EBITDA margin estimations remain unchanged
Source: Bloomberg
as there was no specific increase/decrease in any expense item during the recent
quarters. Relative Performance*
120
Valuation and Outlook 100
Currently, the stock is trading at 23.2x FY18E EPS. We value the company at 24.5x
80
P/E for FY18E EPS. We maintain our positive view on SML with a HOLD rating
60
for a revised target price of Rs. 1350 representing an upside potential of 8% in a
40
9-12 month period.
May-16
Feb-16
Mar-16
Nov-15
Dec-15

Jul-16
Aug-16
Sep-16

Nov-16
Oct-15

Apr-16

Oct-16
Jan-16

Jun-16

Key Risks
SML Isuzu Sensex
yyTough pricing environment.
Source: Bloomberg; *Index 100

Exhibit 1: Valuation Summary (Rs. Mn)

YE Mar (Rs. Mn) FY14 FY15 FY16 FY17E FY18E
Net Sales 8813 11055 11643 13755 15291
EBITDA 317 655 848 1045 1193
EBITDA Margin (%) 3.6 5.9 7.3 7.6 7.8
Adj. Net Profit 174 369 511 669 782
EPS (Rs.) 12.0 25.5 35.3 46.2 54.0
RoE (%) 6.8 13.4 16.7 19.0 19.1
PE (x) 104.1 49.0 35.4 27.1 23.2
Source: Company, Karvy Research
Analyst Contact
Jagannadham Thunuguntla
For private circulation only. For important information about Karvys rating system and other disclosures refer
to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>, 040 - 3321 6296
Thomson Publishers & Reuters jagannadham.t@karvy.com

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 Nov 10, 2016
SML ISUZU Ltd

Exhibit 2: Q2FY17
YE Mar (Rs. Mn) Q2FY17 Q1FY17 QoQ % Q2FY16 YoY % H1FY17 H1FY16 YoY %
Sales Volume (No.) 3427 4893 (30.0) 3042 12.7 8320 6852 21.4
Turnover 3046 4632 (34.2) 2689 13.3 7678 6521 17.8
Expenditure 2867 4020 (28.7) 2564 11.8 6887 5969 15.4
EBITDA 179 612 (70.8) 125 42.7 791 551 43.5
Depreciation 56 58 (3.8) 46 22.4 114 92 24.2
Interest 7 6 25.4 7 2.8 13 16 (18.9)
Other Income 16 10 67.3 21 (20.4) 26 41 (35.6)
PBT 132 558 (76.3) 93 41.7 690 484 42.6
Tax 35 147 (76.1) 30 18.9 182 130 40.4
PAT 97 411 (76.4) 64 52.4 508 354 43.5
EBITDA Margin (%) 5.2 12.5 (730) bps 4.1 110 bps 9.5 8.0 146 bps
EBIT Margin (%) 4.0 12.0 (793) bps 3.0 107 bps 8.8 7.0 177 bps
Net Profit Margin (%) 3.2 8.9 (570) bps 2.4 82 bps 6.6 5.4 119 bps
Source: Company, Karvy Research

Exhibit 3: Financials
FY17E FY18E
YE Mar (Rs. Mn) Comments
Old New % Change Old New % Change
Weak quarter than expected leads to dip in
Net Sales 14173 13755 (2.9) 16724 15291 (8.6)
estimates
EBITDA 1077 1045 (2.9) 1269 1193 (6.0)
EBITDA Margin (%) 7.6 7.6 0 bps 7.6 7.8 (21) bps
Adj. Net profit 682 669 (1.9) 851 782 (8.2)
EPS (Rs.) 47.2 46.2 (2.1) 58.8 54.0 (8.1)
Source: Company, Karvy Research

Exhibit 4: MHCV passenger sales volume (No.) Exhibit 5: MHCV Goods sales volume (No.)
25000 10.2% 120000 2.0%
10.1% 116418
22907 100000
20000 1.5% 1.5%
10.0% 80000
15000
60000 1.0%
23883 1.0% 113781
10000 9.8%
9.8% 40000
0.5%
5000 2254 2420 20000
1149 1719
0 9.6% 0 0.0%
H1FY16 H1FY17 H1FY16 H1FY17
Total volume SML volume Total volume SML volume
Market share (%) (RHS) Market share (%) (RHS)
Source: Company, SIAM (Society of Indian Automobile Manufacturers), Karvy Research Source: Company, SIAM, Karvy Research

Exhibit 6: LCV Passenger sales volume (No.) Exhibit 7: LCV Goods sales volume (No.)
30000 8.5% 200000 1.0%
8.4%
1.0%
25850 8.0% 150000
20000 149420 1.0%

7.5% 100000
7.4% 27819
10000 0.9% 167948 0.9%
7.0% 50000
1919 2324
1359 1641
0 6.5% 0 0.9%
H1FY16 H1FY17 H1FY16 H1FY17
Total volume SML volume Total volume SML volume
Market share (%) (RHS) Market share (%) (RHS)
Source: Company, SIAM, Karvy Research Source: Company, SIAM, Karvy Research

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SML ISUZU Ltd

Financials

Exhibit 8: Income Statement

YE Mar (Rs. Mn) FY14 FY15 FY16 FY17E FY18E
Revenues 8813 11055 11643 13755 15291
Growth (%) (12.1) 25.4 5.3 18.1 11.2
Operating Expenses 8496 10400 10795 12710 14099
EBITDA 317 655 848 1045 1193
Growth (%) (54.9) 106.9 29.3 23.3 14.1
Depreciation & Amortization 128 198 196 218 242
EBIT 189 458 652 827 951
Other Income 47 88 83 91 105
Interest Expenses 59 58 52 27 13
PBT 177 487 683 892 1042
Tax 3 118 172 223 261
Adjusted PAT 174 369 511 669 782
Growth (%) (52.2) 112.3 38.5 30.7 16.9
Source: Company, Karvy Research

Exhibit 9: Balance Sheet

YE Mar (Rs. Mn) FY14 FY15 FY16 FY17E FY18E
Cash & cash Equivalents 411 878 361 300 161
Trade Receivables 818 1044 1028 1384 1297
Inventory 2433 2859 3385 4227 4487
Loans & Advances 310 263 355 371 413
Other assets 15 64 23 20 19
Net Block 1519 1645 2114 2346 2604
Total Assets 5506 6751 7267 8648 8981
Trade Payables 1641 2003 1719 2543 2182
Short & Long term Provisions 526 844 869 1045 1162
Debt 0 223 550 275 138
Other Liabilities 575 651 728 854 943
Total Liabilities 2742 3722 3866 4717 4425
Shareholders Equity 145 145 145 145 145
Reserves & Surplus 2619 2884 3257 3786 4412
Total Networth 2764 3029 3401 3931 4556
Total Networth & Liabilities 5506 6751 7267 8648 8981
Source: Company, Karvy Research

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SML ISUZU Ltd

Exhibit 10: Cash Flow Statement

YE Mar (Rs. Mn) FY14 FY15 FY16 FY17E FY18E
PBT 177 487 683 892 1042
Depreciation 128 198 196 218 242
Net Interest flow 20 35 (27) (64) (91)
Tax Paid (53) (68) (194) (223) (261)
Inc/dec in Net WC 1347 35 (783) (84) (369)
Cash flow from operating activities 1619 688 (125) 738 564
Inc/dec in capital expenditure (177) (343) (670) (450) (500)
Inc/dec in investments 356 (706) 453 0 0
Others 39 17 87 91 105
Cash flow from investing activities 218 (1032) (131) (359) (395)
Inc/dec in borrowings (1621) 223 327 (275) (138)
Dividend paid (Incl Tax) (135) (51) (105) (139) (156)
Interest paid (59) (58) (52) (27) (13)
Cash flow from financing activities (1815) 114 171 (441) (307)
Net change in cash 22 (230) (85) (62) (139)
Source: Company, Karvy Research

Exhibit 11: Key Ratios

YE Mar FY14 FY15 FY16 FY17E FY18E
EBITDA Margin (%) 3.6 5.9 7.3 7.6 7.8
EBIT Margin (%) 2.1 4.1 5.6 6.0 6.2
Net Profit Margin (%) 2.0 3.3 4.4 4.9 5.1
Dividend Payout Ratio (%) 24.9 23.5 22.6 17.3 16.7
Net Debt/Equity (x) (0.15) (0.22) 0.06 (0.01) (0.01)
RoE (%) 6.8 13.4 16.7 19.0 19.1
RoCE (%) 5.4 15.2 18.1 20.3 21.4
Source: Company, Karvy Research

Exhibit 12: Valuation Parameters

YE Mar FY14 FY15 FY16 FY17E FY18E
EPS (Rs.) 12.0 25.5 35.3 46.2 54.0
DPS (Rs.) 3.0 6.0 8.0 8.0 9.0
BVPS (Rs.) 191 209 235 272 315
PE (x) 104.1 49.0 35.4 27.1 23.2
P/BV (x) 6.6 6.0 5.3 4.6 4.0
EV/EBITDA (x) 58.0 28.0 21.7 17.6 15.4
EV/Sales (x) 2.1 1.7 1.6 1.3 1.2
Source: Company, Karvy Research; *Represents multiples for FY14, FY15 & FY16 are based on historic market price

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SML ISUZU Ltd

Stock Ratings Absolute Returns

Buy : > 15%
Hold : 5-15%
Sell : <5%

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