CMP:
Rs. 390.50; Market Cap: Rs. 441.68 Cr; 52 Week High/Low: Rs. 435.00/ Rs. 315.00.
Total
Shares: 1,13,10,712 shares; Promoters : 75,09,166 shares –66.36 %; Total Public
holding : 38,01,546 shares –33.64 %; Book
Value: Rs. 207.63; Face Value: Rs. 10.00; EPS: Rs. 23.82; Dividend: 90.00 %;
P/E: 16.62 times; Ind. P/E: 55.23; EV/EBITDA: 9.86 times.
Total
Debt: ZERO; Enterprise Value: Rs. 437.67 Cr.
INDIA NIPPON ELECTRICALS
LIMITED: Incorporated in 1984, and
converted into a joint venture in 1986 between Lucas Indian Service Ltd, a
wholly-owned subsidiary of Lucas-TVS Ltd and Kokusan Denki Co. Ltd, Japan - a
group company of Hitachi Japan. The
company came out with an IPO on September 1986 offering 49,50,000 equity shares
of Rs. 10 each. The company has not given any splits in face value of its
shares. The company gave its first bonus in May 1994 in ratio of 1 bonus for
every 2 held, on December 1998 in ratio
of 8 bonus for every 5 held, in October 2002 in ratio of 7 bonus for every 10
held and last bonus was announced in August 2011 in ratio 2 bonus for every
five held. India Nippon Electricals Ltd is manufactures Electronic
Ignition Systems for two-wheelers, three wheelers and portable engines. Over
the years the company has enlarged its customer base and now supplies to most
of the manufacturers of two-wheelers, three wheelers and gensets. INEL makes
the entire range of 2/3 wheelers, digital and analog ignition products. The company mainly deals with the ignition units,
coils, regulators, flywheel magnetos, capacitor discharge, etc. Its products include AC Generator, Capacitor Discharge Ignition &
Transistor Ignition Units, Ignition coil Units, Integral Units (Combined CDI
& Ignition Coil), Regulator / Rectifier Units. The company obtain
certificates of recognition from BVQI for ISO 9001 in the year 1998, QS 9000 in
the year 2001 and ISO 14001 in the year 2002. The
company's manufacturing unit is at Hosur- Thali Road Uliveeranapalli
Krishna giri District Tamil Nadu India, second
one at Madukarai
Road, Nettapakkam Commune Kariamanickam Village Pondicherry and third at Rewari
Masani Village Rewari Haryana State India. It
also has a wholly owned subsidiary with Lucas TVS Ltd and Kokusan Denki Company
Limited, a member of Hitachi, Japan. And an investment arm IN Investments Ltd
and helds all the 63,010 equity shares making it 100 % subsidiary of the
company. INDIA NIPPON ELECTRICALS LTD is locally compared with Denso India Ltd,
Minda Industries, Majestic Auto Ltd, Igarashi Motors, Remsons Industries, PPAP
Automotive Ltd, Motherson Sumi Systems, REIL Electricals, Lumax Industries and globally
compared with Delphi Automotive of UK, BorgWarner of USA, Federal Mogul Corp of
USA, Denso Corp of Japan, Robert Bosch GmbH of Germany, SEM of Sweden, Mitsubishi
Electric Corporation of Japan.
Investment Rationale:
India
Nippon Electricals Limited (INEL) was incorporated in 1984. The company is into
manufacturing of electronic ignition systems, auto components and other related
products for two wheelers, three- wheelers and portable gensets. Offers wide
range of products INEL offers varied range of products to serve 2/3 wheelers,
mopeds and portable engines effectively. Its products are used in different
areas such as power generation, power management, ignition management,
automotive electronics and test kits. The company manufactures rotors, stators,
capacitor discharge ignition and transistor ignition units, ignition coil and
control units, integral units such as combined capacitor discharge ignition and
ignition coil units, regulators and rectifiers. Strong client base INEL is one
of established players in the auto ancillary industry. It operates in both
domestic and international markets. It has strong client base which includes
clients like- TVS Motor, Hero Honda Motor, Honda Motorcycle and scooter, Bajaj
Auto, Royal Enfield, LML, Lombardini India, Piaggio India, Honda SIEL Power
Products, Birla Power Solutions, Kokusan Denki and others. INEL has successfully demonstrated to the two
wheeler industry its ability to adapt to the changing business and
technological needs of customers in the areas of quality and customer service. India’s automotive industry is one of the most
competitive in the world. Leading auto maker expects Indian passenger car
market to reach four million units by 2020, up from 1.97 million units in
2014-15. The Indian automotive sector has the potential to generate up to US$
300 billion in annual revenue by 2026, create 65 million additional jobs and
contribute over 12 per cent to India’s Gross
Domestic Product, as per the Automotive Mission Plan 2016-26 prepared jointly
by the Society of Indian Automobile Manufacturers (SIAM) and government. The
Indian auto industry is one of the largest in the world with an annual
production of 2.33 Cr vehicles in FY 2015-16, following a growth of 8.68 % over
the last year. The Two Wheelers segment with 81 % market share is the leader of
the Indian Automobile market owing to a growing middle class and a young
population. Moreover, the growing interest of the companies in exploring the
rural markets further aided the growth of the sector. The overall Passenger
Vehicle (PV) segment has 13 % market share. India is also a prominent auto
exporter and has strong export growth expectations for the near future. In FY 2015-16,
automobile exports grew by 15 % over the last year. In addition, several initiatives
by the Government of India and the major automobile players in the Indian
market are expected to make India a leader in the Two Wheeler (2W) and Four
Wheeler (4W) market in the world by 2020. The industry produced a total 1.42 Cr
vehicles including PVs, commercial vehicles (CVs), three wheelers (3W) and 2W
in April-October 2015 as against 13.83 in April-October 2014, registering a
marginal growth of 3.07 % year-on-year. The sales of PVs grew by 8.51 % in
April-October 2015 over the same period last year. The overall CVs segment
registered a growth of 8.02 % in April-October 2015 as compared to same period
last year. Medium & Heavy Commercial Vehicles (M&HCVs) registered very
strong growth of 32.3 % while sales of Light Commercial Vehicles (LCVs) reduced
by 5.24 % during April-October 2015 year-on-year. In April-October 2015,
overall automobile exports grew by 5.78 %. PVs, CVs, 3Ws and 2Ws registered growth
of 6.34 %, 17.95 %, 18.59 % and 3.22 % respectively in April-October 2015 over
April- October 2014. During 2015-16, the two three wheeler industry grew 2 %
and India Nippon Electrical sales posted a growth of 4 % over its previous year
despite difficult market conditions. India Nippon achieved a 54 % growth in
export business and the direct sales to aftermarket recorded a growth of around
36 % with the help of expanding the dealer network and product range. The
company have secured business for EGR controller for small diesel engines;
company will work closely with customer to meet BS IV emission norms. The
company is jointly developing other technology oriented products like ECU for
Electronic Fuel Injection (EFI), Integrated starter Generator (ISG) for two
wheeler and off road engines with its technical partners. ISG & EFI are two
critical new technologies that will be disruptive to the industry and with
constant focus on R&D the engineers along with technical partners are
building newer capabilities for the future. The company has planned major
investment which will be fruitful in next two years. Great R&D facility and
product line-up along with the strong clientele, India Nippon looks promising.
Outlook and Valuation:
Incorporated
in 1984, INEL was converted into a joint venture in 1986 between Lucas India
Services Ltd ( a wholly owned subsidiary of Lucas- TVS Ltd) and Kokusan Denki
Co. Ltd, Japan ( a group company of Hitachi Japan) to manufacture electronic
ignition systems for two-wheelers, three wheelers and portable engines. In
1986, the company established its first manufacturing plant in Hosur at Tamil
Nadu and started production to supply to TVS Motor Company for motor cycles.
INEL offers wide range of products which include flywheel magnetos, capacitor
discharge ignition units, ignition coils and others. Its manufacturing
facilities are located in Hosur, Puducherry and Rewari. The company serves to
domestic and international markets with a subsidiary viz- P T Automotive
Systems Indonesia. The Indian auto component industry expects
to grow by over four-fold to US$ 113 billion by 2020, as per the Automotive
Component Manufacturers' Association (ACMA). The total passenger car production
in the country will jump four times to reach 9 million cars in the next ten
years. Although a major chunk of this
will come from the fast growing domestic market, exports are likely to form
around 35 % of the total market by 2020. India would be among the top-five
vehicle producing countries in the world by 2020. The 40 % of the auto
component industry is dominated by body and structural products, 20 % by
engines and exhaust, and 10 % each by suspension and braking parts,
transmission and steering parts, electronics and electrical and interiors. By
2017, body and structural will account for 35 % of the auto component industry,
engines and exhaust 20 %, suspension and braking parts, transmission and
steering parts and electronics and electrical will account for 13 % each and
interiors 9 %. India is turning out to
be an attractive destination as a global outsourcing hub and manufacturing base
for original equipment manufacturers (OEMs), especially after the global
economic downturn. With the finalisation of the Automotive Mission Plan (AMP)
India is expected to become a preferred destination for design and manufacture
of automobile. The plan envisaged an investment of US$ 40 billion and provided
a road map to help transform India into a global automobile player. The AMP
proposed a 25-point plan that included making India a manufacturing and export
hub for small cars, multi-utility vehicles, two and three-wheelers, tractors
and components. The Government has taken many initiatives to promote foreign
direct investment (FDI) in this industry like Automatic approval for foreign
equity investment up to 100 % of manufacture of automobiles and components is
permitted, the automobile industry is de-licensed, and Import of components
is freely allowed. The Ministry of Heavy Industries and Public Enterprises has
envisaged the Automotive Mission Plan 2006-2016 to promote growth in the
sector. It targets to Increase turnover to US$ 122 billion–US$ 159 billion by
2016 from US$ 34 billion in 2006, increase export revenue to US$ 35 billion by
2016 Provide employment to additional 25 million people by 2016. India Nippon Electricals
ltd being a leader in manufacturing of Electronic Ignition Systems
for two-wheelers, three wheelers and portable engines, will surely be benefitted
by the increased investments in auto sector and by increase export potentials.
On the financial side INEL posted good numbers. Its June 2016 net Revenue came
in at Rs. 84 Cr as against Rs. 78.33 Cr YoY. It posted total expenses of Rs.
76.83 Cr as against Rs. 71.77 Cr YoY. The company posted Net Profit of Rs. 6.12
Cr as against Rs. 6.11 YoY. India Nippon is a very small company with good financials
and has strong cash flow generating capacity;
the company has been able to keep its debt to equity lower and also been able
to expand through internal accruals. India Nippon Electricals ltd is debt free company
and can remain debt free due to its huge cash flow. At the current market price of Rs. 90.50, the stock is trading at a PE of 14.04 x FY17E and 13.01 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 27.75 in FY17E and Rs. 30.00 in FY18E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also .
| KEY FINANCIALS | FY15 | FY16 | FY17E | FY18E |
|---|
| SALES (₹ Crs) | 327.73 | 339.65 | 368.90 | 400.25 |
| NET PROFIT (₹ Cr) | 22.66 | 26.93 | 31.35 | 34.00 |
| EPS (₹) | 20.05 | 23.83 | 27.75 | 30.00 |
| PE (x) | 17.57 | 14.46 | 13.25 | 12.25 |
| P/BV (x) | 1.79 | 1.62 | 1.48 | 1.80 |
| EV/EBITDA (x) | 8.43 | 7.14 | 6.05 | 5.70 |
| ROE (%) | 9.30 | 10.22 | 11.19 | 11.62 |
| ROCE (%) | 17.72 | 21.43 | 20.08 | 20.50 |
As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % on every purchase. (Why Strict stop loss of 8 % ?) - Click Here
*As the author of this blog I disclose that I do not hold INDIA NIPPON ELECTRICALS LTD in my any of the portfolios.
**Dear Reader Friends, if you enjoyed this article then please do share it with your friends & colleagues through Facebook and Twitter, also do drop in your valubale thoughts in comment box...
So, grab a fresh hot cup of coffee, turn on your net & browse on to www.bhavikkshah.blogspot.in & take out few minutes to get to know the most interesting world of investment... Till then HAPPY INVESTING, don't forget to Share !!
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Disclaimer:
This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.
As a Disclosures I Confirm that :
I confirm that I shall not deal or trade in securities mentioned in this article within thirty days before and five days after the publication of this article. I also confirm that I will not deal or trade directly or indirectly in securities mentioned in this article in a manner contrary to the ideas put forth in the article. I have not received any financial compensation for writing this article.
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE
VIEW THE POWER POINT PRESENTATION ON
Click Here
