Talbros Automotive Components

Talbros Automotive Components                                CMP -110

                 

Company Profile                                                                                            

Talbros automotive Components limited (TACL) is the flagship company of the Talbros Group. The Company was launched in 1956 to manufacture automotive and industrial gaskets in collaboration with Coopers payen limited, UK. The Company is headquartered in Gurgaon with eight state-of-the-art manufacturing facilities located in the vicinity of key OEMs.

Over the years TACL became a diversified auto component player with presence across two wheelers, passenger, commercial vehicles and farm equipments. The Company is well focused manufacture best in class products for Indian automobile industry. To make it happen, company has formed JVs  with NLK -Japan, Magneti Marelli s.p.a.-Italy, Marugo rubber Industries-Japan. It has also international technology tie up with Interface Solutions Altenkirchen, Germany, Nippon Leakless Corporation, Japan and Sanwa Packaging, Japan. Their diversified portfolio includes the manufacturing of gaskets, forgings, suspension systems, engine mounts and anti-vibration products, hoses and heat shields. Company is  having hedged customer base with 40 % revenue from top 5 customers. 

The Company has made prudent investments in capability building in last 3 -4 years and now it is ready for the big leap. It has plans to add  Industrial Gaskets, rear twist beam axle assembly,  wheel group assembly and several new products to their portfolio by 2017. TACL is leader in gaskets segment with 40% overall market share in India and its joint venture company holds a domestic market share of 92% for gaskets in the two-wheeler segment

Company has large and diversified customer base include OEMs like Ashok Leyland, Bajaj Auto, Cummins Group, Eicher India, Escorts Group, Force Motors, General Motors, Hero Honda, Honda, Hyundai, John Deere, Mahindra & Mahindra, Maruti Suzuki, Suzuki, TAFE, Tata Motors, Tata Cummins, Simpsons and international corporate like Carraro, DANA, KMP Brand, Maxi Force, GKN Driveline etc. 

Joint Venturing with Best in Industry 

The company has three joint ventures and two technology tie-ups with global auto component leaders to create multiple growth engines.

Nippon leakless Corporation (Japan) is one of the largest global manufacturers of gaskets for four-wheelers, two-wheelers, power equipment and industrial uses. NLK group supplies to leading OE vehicle & motorcycle manufactures such as Honda, Suzuki & Yamaha world wide. 60:40 JV with Nippon Leakless has benefitted the Talbros in producing asbestos-free gaskets for passenger cars, motorcycles, scooters, power equipment products & industrial applications. JV has state-of-art facilities to manufacture diversified range of Cylinder Head Gaskets in composite, Multi Layered Steel(MLS), Single Layered steel(SLS) & Secondary Gaskets made from metallic & non-metallic jointing sheet materials. NLK Talbros has strong R&D support from Nippon Leakless , Japan. it is not only for product design but also for engine testing with computerized engine test bed & deep thermal shock testing facility. The plant equipped with in-house tool room with modern manufacturing equipment having high level of automation. Nippon Leakless Talbros can design , develop & manufacture products as per customer requirements competitively. JV company holds a domestic market share of 92% for gaskets in the two-wheeler segment by servicing 100% to Honda, 80% to Hero Moto, 100% to Royal Enfield and 100% to Bajaj Auto.

Magneti Marelli s.p.a. (Italy) is a Fiat group company engaged in the manufacture of suspensions (€ 6 billion in global revenues). Magneti Marelli Talbros is a 50:50 JV formed to design, develop & manufacture Chassis components including Control Arm, Steering Knuckle , Front cross Member, Rear Twist Beam Axle, Wheel Group & Semi Corner Module Assemblies for automotive application. Magneti Marelli has high prowess in design, technology & know -how for full spectrum of suspension components & modules thereby bringing in the most advanced lightweight solutions for Indian automobile industry. With full spectrum know how of suspension components & modules. The well equipped facility has been setup for JV with manufacturing practices in line with world class manufacturing processes. The company supplies entire front chassis for vehicles and provides about 48% of the control arms for Maruti Suzuki. It has introduced a new product line (steering knuckles) and commenced production of lower control arms for TATA Motors models (Zest and bolt). The Company received its maiden suspension system order for the bajaj RE60 quadricycle. The Company launched a control arm for Maruti suzuki (NG alto K10). New nominations from Maruti suzuki on yad, yba and yra control arm projects and a nomination from TATA Motors for the X104 control arm project can potentially double the company’s share of the control arms segment in India. Going ahead, the Company is optimistic of its prospects on the basis of bajaj re60 quadricycle orders where the Company has designed the entire chassis spectrum (front-axles, semi-corners, control arms and knuckles). The Company expects to commission a second plant in pune to address the growing suspension needs of Fiat, which intends to launch a new jeep.

Marugo rubber Industries (Japan) is a global leader in the supply of anti-vibration products and hoses to global automobile OEMs. The 50:50 JV between Talbros and Marugo rubber was commissioned in 2013 to localise the production of rubber hoses for Maruti suzuki. Talbros Marugo rubber manufactures anti-vibration products and hoses (engine mounts, strut mounts, mufflers, hangers, suspension bushes, rubber bushes and hoses). The joint venture exports products to its JV partner Marugo rubber. The JV provides technical knowhow in terms of design, development and validation for OEMs. The JV equipped with  high technology manufacturing line having-injection molding , vacuum transfer injection molding, compression molding, kneaders, sandblasting, phosphating & adhesive spray line integrated to give world class products. The Company draws 40% of its revenues from Maruti Suzuki and caters to the requirements of other major players like Qh Talbros, endurance Technologies, Rane (Madras) limited, Escorts India, Honda, Kawasaki, Isuzu and Volvo And TATA Motors. The JV allowed the Company to directly cater to Maruti suzuki at its Manesar plant, reducing lead times. The JV’s anti-vibration business achieved a cash breakeven in FY 2015. The company has commissioned a new hose plant for intercooler hoses and it already received orders from Volvo and this can be boosted further with their eminent passenger and commercial vehicle clientele to tap into new agreements.

Sanwa Corporation (Japan) and TACL has technology tie-ups for making heat shields.  It is primarily used to insulate heat and sound in automobile engines, electric generators and exhaust pipes. The Company already supplies heat shields to several of its major gasket customers. With the use of heat shields expected to become the norm in the Indian passenger car market. The Company’s dedicated heat shield line has started commercial production from Feb 2016, it is well positioned to get the benefit of increasing demand of heat shield in cars. Presently heat shield products are used in the manufacture of heavy and medium commercial vehicles in India, they are not used in passenger cars in India except exported cars. Management expects that as Indian automobile engines become increasingly compact and emission standards more demanding, the use of these products will become mandatory for Indian passenger cars as well. Manufacturing facilities are equipped with state-of-the-art tool rooms with technologically advanced machines from Deckel Maho(Germany), Haas (USA) & Charmelle (Switzerland). It also includes CNC machines , specialized presses mechanical , pneumatic & hydraulic with a capacity range of up to 500 tons, together with sophisticated surface coating equipments. R&D centre continuously focuses on robust product & process design to meet global standards. Design centre is equipped with Computer Aided Engineering(CAE/ FAE), Dynamometers & deep Thermal Shock test facilities.

Forgings

Talbros Forging Division established to manufacture tie rod & housing, king pin with assembly, gear blanks, shafts, yoke, double yoke, yoke shaft and crown blank in machined condition. It is having annual installed capacity of 8500 tons with hot forging press lines ranging from 750 ton to 1600 tons, equipped with heat treatment facilities including normalizing, ISO- annealing, hardening & tempering; induction hardening & in-house machining facilities with CNCs & VMCs to ensure benchmark standards. Strong product engineering capability with modeling software using unigraphics, process simulation using deform & dedicated tool room facilities including Makino vertical machining centers, EDMs & as wells as wire cut EDM. As one stop solutions, capable of serving the automotive , agriculture, defense, marine & off highway vehicle sector. Forging division has a wide exposure in overseas market contributing 65% of the total revenue from export business. Company is looking to form JV partner to establish the domestic market.

Investment Rationale

The Company control 40% market share in overall gasket market in India. There is strong business visibility for gasket segment because several models of new bikes and mopeds are launched by Hero, Honda, TVS and Bajaj. It will ensure healthy revenue from gasket segment for coming years due its monopoly in two-wheeler segment with 92% market share. Company has added 4 new verticals (Anti vibration and Hose, Suspension System, Heat Shield and Forging division) and these new verticals will start showing  good profit in coming quarters.

Talbros Magneti Marelli  joint has won orders for suspension parts of all recently launched new models of Maruti Suzuki  like Brezza, Baleno and the S-Cross.

TACL has secured new export orders from Volvo (US), Basak Tractors (Turkey) and Iran. It will enable the company to extend its reach in new geography. 

Commercial production of new dedicated heat shield line at Faridabad plant has started in February. This new line has been installed to cater to potentially large orders for Indian and overseas market.  TACL already got heat shield orders from Volvo, Eicher, Cummins commercial vehicle, Daimler and  Ashok Leyland. Discussion in progress with Volvo for the export market for heat shields.

Company has completed most of the capacity expansion and no plan to add fresh capex or loan in next 2-3 years.

TACL has plan to disposed off  land in Chennai to bring down debt significantly in  next 1-2 years.

Talbros Marugo joint-venture has won orders for all the new variants of Maruti Suzuki in the anti-vibration space and hose.

 The Company received its maiden suspension system order for the Bajaj RE60 quadricycle. The Company is optimistic of its prospects on the basis of Bajaj RE60 quadricycle orders where the Company has designed the entire chassis spectrum (front-axles, semi-corners, control arms and knuckles). Bajaj Auto has launched the quadricycle RE60 for export to 16 countries even though Bajaj Auto awaits a supreme court verdict before it launches the vehicle in India. Export of RE60 quadricycle is very positive and going to be a huge game changer for Talbros Magneti Marelli  joint-venture.

Company enjoy the status of single source supplier for five top customers includes Hero Moto Corp, Honda Motorcycle and Scooters, Bajaj and Tata Cummins.

The company has introduced a new product line (steering knuckles) and commenced production of lower control arms for TATA  Motors models (Zest and Bolt).

Company enjoy the status of 100% asbestos-free gasket player, making it possible to export to countries with some of the most stringent norms. The Company received its first order from Volvo to supply heat shields in the US and Mexico. Besides, the Company is a single-source supplier to Cummins India and, following its asbestos-free status, has become eligible to supply products globally to Cummins. It is basically something which is very progressive and gives them pricing power, gives them acceptance through lot of international markets particularly Europe and US.

Expanded customer base to include MNCs like Ognibene and American axle.

The Company expects to boost the exports revenue from 13% to 20%.

TACL is maintaining very high quality of the products and own all standard certifications (TS 16949, ISO 9001, ISO 14001, OHSAS 18001) required by domestic and international OEMs. The Company’s plants were audited by international OEMs giants, resulting in orders from Cummins, Daimler, Volvo and Harley Davidson.

Company has build the trust and strong relations with most of the major automobile players in India and across the world, it enabled the company to make easy access while launching of new products.

Company has closed its gaskets facility in Chennai to consolidate capacities and cost control.

To accelerate the growth of forging division, company is trying for make JV with some Japanese company and company has got orders from domestic OEMs. It will reduce the dependency of export to european countries.

Promoters are having very sound knowledge and long experience in automobile industry. Company has rewarded its share holders with consistent dividend payout for the past 50 years even during rough period for automobile industry. Promoters are continuously increasing their shareholding from 26% (2007) to 54% (2015).

Further details are given in below link

http://www.talbros.com/wp-content/uploads/2016/02/Q3-FY-16-Earnings-Call-Transcript.pdf

http://www.talbros.com/wp-content/uploads/2016/02/Talbros_Q3_FY_16_Result_Update.pdf

Conclusion

Talbros is one of the most trusted name for quality products in Indian auto ancillary industry. It is serving almost all major automobile manufacturer in India. Gasket business is backbone of the company and giving stable performance and strong order visibilities for future. All JV companies are having very high technology entry barrier, niche products with low or no competition from domestic manufacturer. The Company has enough cash and idle land in Chennai to retire the debt of 100 crores any time. Market capital of the company is only 136 crore at 110 cmp. In general, if we look at top ten auto ancillaries companies in India than one thing is common "technical tie up or JV with  some foreign auto MNC". TACL has got all the required elements to become major auto ancillary company in the future with 3 JV and 2 technical tie -up.  

Auto sector has also giving sign of recovery along with revival of Indian economy. TACL poised  to get benefit  above mentioned factors in the coming  quarters. It is one of the best stock to invest in auto-sector for long term as well as for short term.

Update on TCI XPS Demerger & Next Stock

TCI XPS Demerger 

Company has filed the petition in High Court of Judicature at Hyderabad during the last week of March and court has granted hearing date on June 06, 2016. Hopefully company will get approval verdict on given date and record date of demerger will be announced before end of June.

Delay from court is common and nothing to worry about it. We have seen similar issue in recent demerger of Crompton Greaves Limited (CG) and Crompton Greaves Consumer Electricals Limited (CGCEL).

If any correction before record date should be taken as good opportunity to add more. From 1 April both companies (TCI & XPS) are operating separately and recently TCI has announced  about setup of subsidiary company 'TCI Bangladesh Limited' in Bangladesh. TCI is trying to expand its remaining business aggressively so that revenue loss due to demerger of XPS can be compensated in coming quarters.   

In the  series of 'Best Stock Picks' next stock will be posted before  08.05.2016. There will not be any clue to guess the stock. 

Company has extremely strong fundamental business with fair possibility of huge turnaround. It hold market leadership position (monopoly) in its business segment in India.  

Stock is providing very good investment opportunity for short term as well as for long term.

Insecticides (India) Limited

Insecticides (India) Limited                                                                                               cmp - 317

In the union budget 2016, GOI has given highest focus to rural and agriculture development. The higher growth in agriculture sector will encourage farmers to boost their agricultural production and it will provide huge opportunity for the agrochemicals sector as well.

In December 2015, NITI Aayog, Government of India has submitted the report on agri sector with shocking results that crop yield losses in India due to pests, which include all biotic stresses such as weeds, insect-pests, diseases, nematodes and rodents, range from 15 to 25%. It is Rs. 60,000 crore annual loss of agricultural production. Consumption of crop protection products in India is amongst the lowest in the world at 0.6 kg per hectare as compared to 5 kg per hectare in the UK and 7 kg per hectare in the USA. The growth of agrochemical industry is directly proportional to the growth of the agriculture sector. In order to protect the crop, the farmer requires agro-chemicals to enhance productivity. There is huge scope of agro chemical business and Insecticide India is well positioned to take the advantage.

NITI Aayog report is available on  below link, refer 3.2.3 pesticides

http://niti.gov.in/mgov_file/Raising%20Agricultural%20Productivity%20and%20Making%20Farming%20Remunerative%20for%20Farmers.pdf

Company Overview

Insecticides India Ltd (IIL) is  one of the top Indian agrochemical company. It is engaged in the manufacturing of pesticide formulations for crop protection as well as technical grade chemicals such as Imidacloprid, Acetamiprid, Dichlorvos, Lambda Cyhalothrin, d-Trans Allethrin, Glyphosate, Butachlor and Thiamethoxam, providing the competitive edge over competitors. It has an extensive portfolio of 15 technical and 110 products constituting of insecticides, herbicides, fungicides, plant growth regulators (PGRs), bio fertilizers  and commands ~ 8% of market share. The company has five state-of the-arts ultra-modern production facilities with world class automated machineries for the formulation and technical synthesis of agro chemicals. Its formulation plants are situated at Chopanki (Rajasthan), Udhampur (J&K), Samba (J&K) and Dahej (Gujarat), while the technical synthesis plants are situated at Chopanki (Rajasthan) and Dahej (Gujarat). IIL has emerged as a strong player in the branded formulations market with a portfolio more than 90 branded products. The company has a pan-India presence through its extensive network of over 5,000 distributors and more than 60,000 dealers across the country. IIL is one of the few fully integrated companies engaged in the formulation, technical production, marketing and the R&D of agro chemicals.

Strong Product Mix 

Company manufactures off-patented technical products, formulated products and patent branded products through acquisition, collaboration, and tie-ups. The company has market leading power brands like Lethal, Victor, Thimet, Hakama, Pulsor, Monocil, Hijack, Xplode and Nuvan. Company has track proven record of turning around acquired off-shelf brands into market leaders. It has initially built its product portfolio via acquisitions such as Mantari from Ranbaxy Group and Monosil from Nocil. It also has international tie-ups with AMVAC and Nissan Chemicals for brand licensing, marketing and distribution rights. It has acquired and in-licensed brands as well as created its own brands such as Hijack, Selector, Strike, Flite 71, Victor, Monocil, Xplode, Lethal, Nayak, Sharp, Indan 4g, Super fighter, Aflatoon, Bravo, Titan, Metacil, Milstim, Mycoraja, Prime gold, and Olympic. It primarily relied on reverse engineering off-patent products to create the products behind these brands. It has an in-house R&D facility, accredited by NABL & recognized by DSIR with 14 scientists, responsible for new product creation. Navratnas (the top 9 brands) & Super 11 brands (the next top 11 brands) contribute 53% and 15%, respectively.

R&D Center and  JV with OAT Agrio (Japan)

Company has an R&D centre at Chopanki (Rajasthan) for developing processes for new environmental-friendly formulations. The center is accredited with NABL and DSIR (Department of Scientific and Industrial Research). New products under agrochemicals have to be approved by Central Insecticides Board (CIB). This R&D centre is dedicated to capitalize huge opportunity available in off patent molecules. The patent expiry of several agro chemical products in the next 2-3 years is likely to provide an opportunity of ~ USD 3 bn market for generic players worldwide by 2019.

The company has set up dedicated  R&D centre for JV with Otsuka Agri Techno Company Limited of Japan. It has started to develop 5-10 products and started filing for patents. It will take 1-2 years for commercialisation of these products. The joint venture agreement with OAT Agrio (Japan) is to provide the technological know-how required in the invention of new agricultural molecules for domestic and international markets besides managing intellectual property. The JV will enable the company to launch new patented products in India and 14 other countries in Indian Sub-continent, Middle East, East–African countries with exclusive distribution right.

Investment Rationale

IIL has commissioned capacity expansion with INR2.5b capex over FY11-15, now it has an annual capacity of more than 1.10 lakh tonnes of formulations and 13,800 tonnes of technicals. It can double revenues from existing capacities without any major incremental capex because currently it utilize 60 % of installed capacity. With capacities in place, it can ramp-up of revenues from existing branded products, launch of new molecules, potential scaling up of technicals business in FY16 -17.

Off-patented technical products, of which ~50-60% are consumed in-house for manufacturing formulations and the remaining are sold in the open market.

Company is well placed to participate in CRAMS and third-party manufacturing business with large manufacturing and R&D capacities in place. The opportunity is attractive with increasing presence of MNCs in India (which have the technical know-how and capability to develop new molecules) and cost-effective manufacturing abilities.

IIL is focusing on high growth emerging and developed markets for Branded Formulations / Technical products. The company is scouting for export markets in Japan, Europe and the US. The latest manufacturing facility i.e. Dahej is close to the port. Therefore, it is best suited to cater to the export market demand. 

Company has issued 16.4 L shares  under QIB @ 509 to Sundaram, SBI, HDFC, Morgan Stanley and Merrill Lynch in Aug 2015.

http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/F4662BFD_119A_4301_A350_7B70B3639622_191117.pdf

Management

Visionary management  has successful proven track record. They have bought several off shelf brands and converted them into leading brands. Recently below future business guidelines are given by Managing Director Rajesh Aggarwal of Insecticides India -"We are aiming to touch Rs 2,000 crore in the next four years," and hoping that IIL would be a USD 1 billion firm within next decade. The company is exporting agrochemicals worth Rs 15-20 crore and plans to cross Rs 100 crore-mark in the next two years". "We are working on to develop new and high margin products, including product extensions of established brands and expand the revenue share of current product portfolio at the same time," 

http://www.moneycontrol.com/news/business/iil-aims-to-double-turnover-to-rs-2000-crnext-4-yrs_5349021.html

Conclusion

Insecticides (India) Limited is fastest growing fully integrated agro-chemicals company. The wide acceptability of its Tractor brand and company maintain deep connection with the farming community. Company has Pan India presence and deep penetration with extensive network. Stock corrected heavily in recent market correction and poor results in Q3 due to floods. It is trading at half of industry average P/E. Coming two quarters are best for pesticides & agro chemicals sector. It is providing best investment opportunity for short term as well as for long term.