Scrip Code: 517380 / IGARASHI

CMP: Rs. 730.65; Market Cap: Rs. 2,236.40 Cr; 52 Week High/Low: Rs. 759.75/ Rs. 375.00.

Total Shares: 3,06,08,444 shares; Promoters : 2,62,76,684 shares – 85.85 %; Total Public holding : 43,31,760 shares – 14.15 %; Book Value: Rs. 96.19; Face Value: Rs. 10.00; EPS: Rs. 21.89; Dividend: 55.00 %; P/E: 33.35 times; Ind. P/E: 50.61; EV/EBITDA: 17.29 times.

Total Debt: Rs. 44.13 Cr; Enterprise Value: Rs. 2,170.61 Cr.

IGARASHI MOTORS INDIA LIMITED: Incorporated in 1946, and is based in Tamil Nadu, India. Igarashi Motors Ltd started by Eiji Igarashi who established a private company in Kawasaki, for the production and sales of D.C. motors for toys and model ships. It has been developing and manufacturing small D.C. motors, for more than fifty years. In India the company was established in the year 1993 in a joint venture with Crompton Greaves for development, production and sales of DC motors, DC motors with accessory, and assembly service like end cap-case-armature. The company has developing and manufacturing small DC motors for more than fifty years and has done pioneering work in product development, improvement and testing for the creation of new manufacturing technologies. The design-development-technical departments are in Japan, China and India dedicated to providing better technology and realizing the creation of highly efficient small DC motors. Igarashi Motors India Ltd came with a public issue of Rs. 2.77 Cr of Rs. 10 each at Rs. 10 each in 1994 to part finance its 100 % Export oriented Unit to manufacture permanent magnet DC micro motors, the total project cost was Rs. 10 Cr and was listed on 19 May 1995. Till date company has not given any bonus or splits in face value of its shares. Motors produced by Igarashi Motor Sales are designed in accordance with ISO 9002 regulations to ensure quality products with optimal functionality. Before, during, and after production, their motors are subject to intense quality controls and testing methods to ensure reliability & Design FMEA and Process FMEA are extensively used to secure efficiency and dependability. Igarashi products includes -DC Motors: Flat Type Motors, Round Type Motors, High Voltage Motors ; Gear Motors: Planetary Gear motors, Spur Gear motors, High Voltage Motors, Armatures. Igarashi Motors has developed an international presence as a means of providing quality product to companies throughout the world. With sales offices, manufacturing facilities and distribution centers worldwide. During 1997-98, the company has expanded capacity of Rotors by 1.5 million nos there by taking the capacity to 3.5 million nos and then to 6 million nos in 1998-99. The company was certified QS 9000 in November 1998 and the Quality System has been upgraded to conform to the latest edition of QS 9000 with effect from January 2000. During 2002-03 Crompton Greaves Limited have divested their holding in favour of Igarashi Electric Works. Since Igarashi Electric Works (HK) ltd have acquired 30,99,993 equity shares of CG Capital & Investments Ltd, the Board changed the name of the company to Igarashi Motors India Limited. Its subsidiaries worldwide includes: Heng Gang Yat Yue Industrial, Heng Gang Igarashi Electrical Works, Igarashi Motor Sales, LLC USA, Igarashi Motoren Germany, CG Igarashi Motors Ltd India, Zhubai Igarashi Electric Works China, Hanamaki Nippa Industrial Ltd, Igarashi Electric Works Ltd, Yat Yue Industrial Ltd, Igarashi Electric Works Ltd. IGARASHI MOTORS INDIA LTD is locally compared with Minda Corp Ltd, Majestic Auto Ltd, PPAP Automotive Ltd, Motherson Sumi Systems Ltd, REIL Electricals, Remsons Industries, Denso India Pvt Ltd, Talbros Automotive and Globally compared with NGK Spark Plug Corp of Tokyo, Sumitomo Electricals of Tokyo, Panasonic Corp, Nippon Seiki Corp, Riken Corp.

Investment Rationale:

Igarashi Motors India Limited incorporated in 1946, is engaged in the business of auto components for automobiles. The Company offers electric micro motors and motor components. The Company is engaged in the production and export of permanent magnet direct current (DC) motors for automotive sector specifically for passenger cars. The Company's DC motors include SQ-2846, SQ3264, SQ3657, SQ3365, SQ-3655, SQ-2848, SQ-3458, 3657 and 3665. The Company's products' primary application is Electronic Throttle Control (ETC). The Company has produced over 500 million DC motors for usage in actuator application/systems in passenger cars. The Company's holding company is Agile Electric Sub Assembly Private Limited. The Company's ultimate holding company is Igarashi Electric Works Limited. The company specializes in the design and manufacture of small, permanent magnet DC motors and gear motors. The Indian auto industry is one of the largest in the world with an annual production of 23.37 million vehicles in FY 2014-15, following a growth of 8.68 % over the last year. The automobile industry accounts for 7.1 % of the country's gross domestic product (GDP). 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 14.25 million 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 per cent 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. India’s automotive industry is one of the most competitive in the world. The Indian auto-components industry has experienced healthy growth over the last few years. Some of the factors attributable to this include: a buoyant end-user market, improved consumer sentiment and return of adequate liquidity in the financial system. The auto-components industry accounts for almost 7 % of India’s Gross Domestic Product (GDP) and employs as many as 19 million people, both directly and indirectly. A stable government framework, increased purchasing power, large domestic market, and an ever increasing development in infrastructure have made India a favorable destination for investment. 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. It is expected that the global automotive industry vehicle volume to cross from the current 75mn vehicles per annum to cross 110 mn by 2022, the share of automotive production in Asia was 33 % in 2000 which went upto 50 % in 2012 and is likely to be upwards of 55 % by 2020. Vehicle sales in Europe are expected to remain stagnant between 15 to 18 million annually and the main growth is expected in Asia pacific and to an extent, in Americas. The fixed investments in automotive capacity in Asia pacific is estimated to be 60 % of the total global investment, out of the 110million vehicles estimated for 2022, approximately 90 % is expected to be pure Internal Combustion Engine (ICE) vehicles while the balance 10 % will be a combination of electric vehicles and hybrid electrical vehicles. The Government of India encourages foreign investment in the automobile sector and allows 100% FDI under the automatic route. Some of the major initiatives taken by the Government of India are: Government of India aims to make automobiles manufacturing the main driver of Make in India initiative, as it expects passenger vehicles market to triple to 9.4 million units by 2026, as highlighted in the Auto Mission Plan (AMP) 2016-26. In the Union budget of 2015-16, the Government has announced to provide credit of Rs. 8,54,000 Cr (US$ 127.5 billion) to farmers, which is expected to boost the tractors segment sales. The Government plans to promote eco-friendly cars in the country i.e. CNG based vehicle, hybrid vehicle, and electric vehicle and also made mandatory of 5 % ethanol blending in petrol. The government has formulated a Scheme for Faster Adoption and Manufacturing of Electric and Hybrid Vehicles in India, under the National Electric Mobility Mission 2020 to encourage the progressive induction of reliable, affordable and efficient electric and hybrid vehicles in the country. The Automobile Mission Plan (AMP) for the period 2006-2016, designed by the government is aimed at accelerating and sustaining growth in this sector. Also, the well-established Regulatory Framework under the Ministry of Shipping, Road Transport and Highways, plays a part in providing a boost to this sector. The government initiative and investments and the potential makes the auto mobile sector lucrative and makes the prospectus of the Igarashi Motors even brighter. It is expected that the growth to be driven by numerous factors like strong economic growth; continued population growth; expansion of the middle class; strong rainfall and an increasingly favourable regulatory environment makes Igarashi Motors best choice from this sector.

Outlook and Valuation:

Igarashi Electric Works, Ltd. since its establishment in 1952 has dedicated itself to the development, manufacture and sale of products specially designed to meet the needs of its customers. To maintain full satisfaction, the company has grown and established new manufacturing and sales organizations in USA, Germany, China, India, and Hong Kong, as well as maintaining its continued presence in Japan. The company has developing and manufacturing small DC motors for more than fifty years and has done pioneering work in product development, improvement and testing for the creation of new manufacturing technologies. Motors produced by Igarashi Motor Sales are designed in accordance with ISO 9002 regulations to ensure quality products with optimal functionality. Before, during, and after production, the motors are subject to intense quality controls and testing methods to ensure reliability. Design FMEA and Process FMEA are extensively used to secure efficiency and dependability. Igarashi offers a wide variety of motors in different sizes and shapes. One can select their small and high performance motor from flat type, round type or geared motors. Custom designs and value added components often lead to complete sub-assemblies and assemblies. Igarashi work with their network of suppliers to further facilitate the incorporation of their motor into their product by creating a complete assembly that can readily be adapted to production requirements. Discussions with Key customers indicate that the average number of electric motors per global vehicle will move up from 20 to 25 Electric motors per car to 35 to 40 Electric Motors per car in the next three to four years. Dynamics in development of electric motors for these actuators continue to remain strong. Electric motor performance parameters, specifically related to new technologies resulting in lower weight, smaller volume, lesser current fuel consumption and favourable overall cost. Due to stringency of fuel efficiency and emission norms, electric motors for aforementioned actuators is likely to go up steadily over the next years from the present level of 1 to 2 motors average per global vehicle to 3 to 4 motors average per global vehicle. The key applications, in this space continues to be Electronic Throttle Control valves in engines including air control valves, Exhaust gas recirculation valves, Waste gate actuators and Bypass valves in Turbo chargers & fluid control valves for thermal management applications. The market for these motors is estimated to grow at more than twice the rate of the vehicle growth. On financial side, Igarashi Motors Ltd achieved a turnover of Rs. 125.40 Cr for the 1st quarter of the FY 2016-17 as against Rs. 108.65 Cr in the corresponding quarter of the previous year, an increase of 15.41 %. During the quarter, net profit increased by 21.60 % to Rs. 18.99 Cr from Rs. 15.61 Cr in the corresponding quarter ending of previous year. During the quarter, EBIDTA stood at Rs. 34.47 Cr as against Rs. 30.26 Cr in the corresponding period of the previous year, up by 13.93 %. Profit before tax (PBT) stood at Rs. 28.84 Cr in Q1 FY17 against Rs. 23.98 Cr in the corresponding quarter of the previous year, up by 20.24 %. EPS of the company stood at Rs. 6.20 in Q1 FY17 against Rs. 5.10 in the corresponding quarter of the previous year. Net Sales and PAT of the company are expected to grow at a CAGR of 12 % and 17 % over 2015 to 2018E; respectively. Highest market capitalization among its peers, Igarashi has huge market capitalization of 2094 Crs. Domestic institution are gradually attracting towards the company. Igarashi has very less debt to equity ratio of 0.17 and good interest coverage ratio of 16.75. Continuous increasing positive cash flow from operating activities. Company has very less interest outgo which has further lowered down in last year. Company dividend pay-out has increased by 23.87%. Igarashi has Operating profit margin of 19.78% for FY15-16. Igarashi has Net profit margin of 14.33% for FY15-16. Company has developed an international presence to provide its quality product and services worldwide. At the current market price of Rs. 730.65, the stock is trading at a PE of 29.81 x FY17E and 26.16 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 24.51 in FY17E and Rs. 27.92 in FY17E. 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)	385.07	444.98	507.28	573.22
NET PROFIT (₹ Cr)	48.95	63.64	75.03	85.47
EPS (₹)	15.99	20.79	24.51	27.92
PE (x)	45.09	34.69	29.42	25.83
P/BV (x)	8.80	7.50	6.13	5.22
EV/EBITDA (x)	22.44	17.34	14.92	13.17
ROE (%)	19.51	21.62	20.82	20.21
ROCE (%)	39.29	44.29	42.03	40.22

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*As the author of this blog I disclose that I do not hold IGARASHI MOTORS INDIA LTD in my of the portfolios.

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