We are glad to inform you that our Hidden Gem stock of May'14 - Rane Brake Lining Ltd (BSE Code: 532987, NSE Code: RBL) has achieved its target today giving absolute returns of 105% to our Hidden Gems members in period of 20 months. Our team suggested Buy on Rane Brake Lining Ltd at price of Rs. 200 on 31 May'14 with a target price of Rs. 410. Target is achieved today, stock has made 52 week high of Rs. 427 today on BSE and currently trading at Rs. 400, giving absolute returns of 100% to our members within period of 20 months.
Company has declared its Dec'15 quarter results yesterday, the company registered sales and operating income of Rs. 111.68 crores for the Dec quarter as against Rs. 101.15 crores for the same quarter of the previous year. Sales to the domestic OEM, Aftermarket and Railways grew by 7%, 11% and 71% respectively. However there was a marginal drop in the sales to exports compared to the same quarter of last year.
Rane Brake Lining has posted healthy PBT of Rs. 10.87 crores in Dec'15 quarter against Rs. 5.37 crores in the same of last year registering growth of 102%, EBIDTA is at Rs. 16.44 crores, up by 41% over same quarter last year. We suggest our members to continue to hold the stock as valuations are reasonable and we believe company will continue to perform well in coming quarters like that of previous quarters.
Below is the summary of Rane Brake Lining Ltd shared by our team under Hidden Gem stock recommendation - May'14
1. Company Background:
- Automotive Products : Brake linings, disc pads and clutch facings
- Railway products : Composite brake block
- Aerospace : Organic pads for trainer aircraft
- Automotive Products : Brake linings, clutch facings & sintered clutch buttons
- Railway Products : Compositive brake blocks
- Automotive Products : Disc pads, clutch facings & CV Brake Pads
- Railway Products : Composite Brake Blocks
- Automotive Products : Disc Pads & Brake linings
- Leader in Commercial Vehicle / Passenger Car / Utility Vehicle & Two Wheeler applications
- Leading supplier of composite brake blocks to Indian Railways
- Most preferred brand in independent replacement markets
- Significant supplier to State Transport Undertakings
- Products supplied to 15 countries
- Supply experience to Sri Lankan Railways for composite brake blocks
- Range & technology for Indian / European Commercial Vehicle references
- CV disc brake pads to Europe
There are more than 10,000 dealers serviced by 7 Whole Sale Distributors (WSD) across the country. RBL has 9 depots spread across the country with location choice specific to business density for servicing the market requirements.
- ISO 9001:2008 – Quality Management System,
- ISO/TS 16949:2009 - International Automotive Quality System,
- ISO 14001:2004 : Environmental Management System,
- BS OHSAS 18001:2007 - Occupational Health & Safety Management System.
The group’s capex has also been necessitated as part of its strategy to maintain leadership in its business segments and achieve sales turnover of Rs 4,300 crore by 2015-16.
The investments will be made across seven entities, including three listed companies, of the group. “The capex of Rs 558 crore is for the total group during the next three years ending 2016. It will be funded through internal generations and debt,” said L Ganesh, chairman, Rane group.
Most of the capex is intended towards expansion of capacity of steering gear, EPS (electric power steering), friction materials, including brake linings and disc pads, while part of it is towards productivity improvement and research and development. In an attempt to be technologically self-sufficient, the group has been steadily boosting R&D investments — from 0.5 per cent of sales in the past to 1.5 per cent going forward.
Of the seven companies, Rane Madras and Rane NSK Steering Systems will spend Rs 160 crore and Rs 150 crore, respectively, on expansion of capacity in various areas on the back of new customers. Rane Brake Linings will spend about Rs 110 crore over the next three years on R&D as also to improve export business. Rane Engine, Rane TRW Steering Systems, Rane Diecast and Kar Mobiles will account for the rest of the spend.
“Our capex plan is based on the assumption that markets will start improving towards the end of this year (although current signs are not encouraging) and the next two years will be seeing healthy growth. Besides the domestic market, we are also focusing on increasing exports, which is expected to be 15 per cent of sales by 2015-16,” Ganesh said.
Despite a slowdown in the auto sector, the group managed to post a decent growth in FY13, with total revenues of Rs 2,923 crore ($538 million) against Rs 2,650 crore ($520 million) in FY12.
Rane Brake Lining net profit rises 141.62% in the March 2014 quarter
Net profit of Rane Brake Lining rose 141.62% to Rs 95.2 million in the quarter ended March 2014 as against Rs 39.4 million during the previous quarter ended March 2013. Sales rose 7.74% to Rs 1085.9 million in the quarter ended March 2014 as against Rs 1007.9 million during the previous quarter ended March 2013.
4. Peer Group Comparison:
5. Key Concerns & Risks:
i) India is becoming a preferred destination for many global automobile manufacturers to set up their manufacturing facilities. RBL is facing stiff competition in OEM business from both local players and global competitors. Entry of global auto majors is likely to encourage entry of new global competitors for RBL. In aftermarket, which is highly fragmented, RBL faces stiff competition from large number of organized and un-organized players.
6. Investment Rationale: (as on 31 May'14)
i) Management expansion strategy to maintain leadership position
Despite sluggish automobile market conditions, Rane Group has chalked out an expansion strategy with a budget of Rs 558 crore in 2013 for the next three years as the Chennai-based leading auto component house expects the market to improve from and report strong growth in the following two years. Rane Brake Linings will spend about Rs 110 crore over the next two years on R&D as also to improve export business.
Most of the capex is intended towards expansion of capacity of brake linings and disc pads, while part of it is towards productivity improvement and research and development. In an attempt to be technologically self-sufficient, the company has been steadily boosting R&D investments — from 0.5 per cent of sales in the past to 1.5 per cent going forward.
ii) Ease in Inflation and drop in Interest rates will drive growth
The Company remains cautiously optimistic about the growth of the automotive industry. With easing of inflation rates and hopes of interest rate cuts, the economic growth is likely to build gradual momentum. The newer vehicle models introduced in the market are likely to spur the growth. With profitable growth continuing to remain the focus area, the Company plans to expand its horizons by adding new territories and new customers.
iii) Significant Increase in promoters share holding
Promoters have increased their stake in the company through continuous open market purchases. Share holdings of promoters in the company by end of Mar’14 quarter is 65.60%, increased by 2.65% during one year. In Mar’13, the same was 62.95%.
iv) Dividend payout with attractive dividend yield
RBL is paying regular dividend to the shareholders since past many years. Recently, company has declared dividend of Rs. 7.50 which will be paid on 28th July’14. With Rs. 7.50 dividend payout, dividend yield at CMP of Rs. 200 is 3.75%.
v) Best in class technology in collaboration with the Nisshinbo Brakes Inc., Japan
The Company would continue to take rigorous efforts to retain the market leadership by developing customized products for the customers. The Company in collaboration with the Nisshinbo Brakes Inc., Japan provides the state of- the-art technologies for applications in new generation vehicles. Moreover, RBL holds the distinction of being the first friction material company in the world to have won the most prestigious Deming Grand Prize 2013. This catapults RBL to a new league altogether and marks another step in its journey towards Excellence.
(as on 31 May'14)
i) Nisshinbo Brake Inc (NISB) who has been the technology partners of the company since 1996 have their shareholding of 20%. This will help the company in further advancement of research and development to meet the new technology requirements of the future. Indian automotive industry is dominated by Japanese and Korean auto manufacturers. The increased co-operation with Nisshinbo Group will not only serve the Japanese and Korean manufacturers but also other European and domestic car companies in India. The technical inputs and greater co-operation from Nisshinbo Group would thus be beneficial to the Company in terms of business potential and customer relationship.
- 70% at current market price of Rs. 200
- 30% at price range of Rs. 170 – 180 (in case of correction in stock price)
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