OVERVIEW: Industry: Indian Automobile Industry: The Indian Automobile Industry is the 6th largest automobile industry globally with an average annual production of 24million vehicles in 2016. As of FY15, the market size was around USD74bn which is expected to increase to USD260-300bn by FY26E. India has the fifth largest passenger and commercial vehicle market. It contributes 7.1% of India's Gross Domestic Product (GDP) by volume. India is the second largest two-wheeler manufacturer, the largest motorcycle manufacturer and the fifth largest commercial vehicle manufacturer in the world. Two-wheeler production is expected to rise from 19.9mn in FY17 to 34mn by FY20E. By 2020, India's share in the global passenger vehicle market to touch 8% from 2.40% in 2015. (as per IBEF) Classification of the Automotive Market:

Domestic automobile Market :

Production of passenger vehicles, commercial vehicles, 3-wheelers and 2-wheelers grew at a CAGR of 3.8%, (2.7%), (2.2%) and 5.25%, respectively, during FY12-17.

CMP: Rs. 540 TARGET PRICE: Rs.750 TIME : 12 months

SNAPSHOT

52 week H / L Mcap (INR mn)

650/420 30,041

Face value: 10

BSE Code NSE CODE

505744 FMGOETZE

Annual Performance

(Rs mn) FY15 FY16 FY17 FY18E

Sales (Net) 15,365 13,277 13,022 13,673

EBITDA 1,364 1,400 1,797 1,983

EBITDA (%) 8.9% 10.5% 13.8% 14.5%

Other Income 374 354 263 276

Interest 370 284 198 142

Depreciation 894 752 764 779

PBT 475 718 1,098 1,337

PAT 314 440 720 876

Equity 556 556 556 556

EPS (INR) 5.6 7.9 12.9 15.7

Ratio Analysis

Parameters (Rs mn) FY15 FY16 FY17 FY18E

EV/EBITDA (x) 23.3 22.7 17.2 15.6

EV/Net Sales (x) 2.1 2.4 2.4 2.3

M Cap/Sales (x) 2.0 2.3 2.3 2.2

M Cap/EBITDA (x) 22.0 21.5 16.7 15.2

Debt/Equity (x) 0.5 0.4 0.2 0.2

ROCE (%) 5% 6% 10% 12%

Price/Book Value (x) 6.7 6.1 5.3 4.6

P/E (x) 90.1 65.3 41.7 34.3

Share Holding Pattern as on 30th June 2017

Parameters No of Shares %

Promoters 4,17,15,454 74.98

Institutions 76,89,895 13.83

Public 62,26,781 11.19

TOTAL 5,56,32,130 100.00

Quarterly Performance

Parameters (Rs mn) Sep-16 Dec-16 Mar-17 Jun-17

Sales (Net) 3,251 2,927 3,436 3,294

EBITDA 483 375 517 516

EBITDA ( %) 15% 13% 15% 16%

Other Income 80 36 72 51

Interest 57 44 48 35

Depreciation 192 192 189 190

PAT 206 114 233 224

Equity ( Rs mn) 556 556 556 556

TM

Note: All the data is calculated as per Market Price on 13th September 2017 Please Turn Over

September 14, 2017 PICK OF THE MONTH VOL-3, NO-16

Federal –Mogul Goetze (India) Limited BUY

Source: IBEF

Source: SIAM

Source: SIAM Source: Annual Report

OVERVIEW: Industry: (contd.)

Export automobile Market: Automobile exports grew at a CAGR of 3.4% during 2012-2017. During FY06-17, automobile exports from the country increased at a CAGR of 14.1%. With a volume share of 67.2%, 2-wheeler segment accounted for the largest volume share in overall automobile exports in FY17. Passenger vehicle segment accounted for a sizeable share of 21.8% in the overall automobile exports in FY17. Exports of 3-wheeler vehicles registered a volume share of around 7.8% in exports in FY17.

Growth Drivers for the Industry: Increasing disposable incomes in the rural agri-sector would lead to increase in the overall demand. Growth in export

demand is also set to accelerate. The presence of a large pool of skilled and semi-skilled workers and a strong educational system would lead to increase

in the investments. Favorable government policies like lower excise duties, Automotive Mission Plan (AMP 2026), the constitution of

NEMMP (National Electric Mobility Mission Plan 2020), FAME (Faster Adoption and Manufacturing of Hybrid land Electric Vehicle)

Huge demands for low-cost electric vehicles best suited for safe short-distance urban commutes (averaging 50-100 km/trip) that are rugged enough to perform reliably through India's summers and monsoon. It is estimated that total electric vehicles sales would amount to 6-7 million units by 2020.

CMP: Rs. 540 TARGET PRICE: Rs.750 TIME : 12 months

TM

Please Turn Over

September 14, 2017 PICK OF THE MONTH VOL-3, NO-16

Federal –Mogul Goetze (India) Limited BUY

Source: SIAM Source: SIAM

Source: SIAM

Source: ACMA

OVERVIEW: Industry: (contd.) Auto Component Industry: India auto component aftermarket is expected to grow at 10.5% to touch USD13bn by 2019-20, as compared to USD8.4bn in 2016-17. Indian Auto Component industry currently accounts for 1.87% of the GDP of country. About 72% of the auto component industry in India is organized. Industry revenues grew at a CAGR of 12% from USD26.5bn in FY08 to USD66bn in FY16. The factors that would add to the growth of Auto components industry include recovery of CV segment in India & USA, demographic changes (growing income level), cost competitive production in India, GOI initiative (Make in India, Automotive Mission Plan) and outsourcing by global manufacturers. About the Company : Federal-Mogul Goetze (India) Limited (Federal Mogul) was established in 1954 as a joint venture with Goetze-Werke of Germany. Goetze-Werke of Germany is now owned by Federal-Mogul Corporation, USD6.3bn global company and one of the leading manufacturers of automotive components in the world. Federal Mogul is the largest manufacturer of pistons and piston rings in India. It manufactures world-class pistons, piston rings, sintered parts and cylinder liners covering a wide range of applications including two/three-wheelers, cars, SUVs, tractors, light commercial vehicles, heavy commercial vehicles, stationary engines and high output locomotive diesel engines. The company has 3 modern production facilities located at Bangalore, Patiala, Bhiwadi which TS 16949, ISO14001 and OHSAS 18001 are certified. The holding company is one of the world’s leading power train component and assembly providers and also major player in auto components. The company has Mr. K.N. Subramaniam as the Chairman and Director of the company. Mr. Vinod Kumar Hans is the managing Director of the company. It caters to both the domestic as well as the International market. (FY17 exports were 12.5% of the total turnover). The company operates mainly in two segments namely: OEMs After-Market

CMP: Rs. 540 TARGET PRICE: Rs.750 TIME : 12 months

TM

Please Turn Over

September 14, 2017 PICK OF THE MONTH VOL-3, NO-16

Federal –Mogul Goetze (India) Limited BUY

Source: IBEF

Source: ACMA

About the company (contd.) Product range : The company has a range of products across Pistons, Piston Rings, Cylinder Liners, Light Metal Castings and Sintered Metal Products. About Piston & Piston Rings: The Automotive Piston market is valued at USD11,234mn in 2015 and is projected to reach USD15,705mn by 2022, growing at a CAGR of 4.8% from 2016-2022. Automotive piston is an engine component cylindrical in shape, which slides back and forth in the cylinder bore by the force produced by the expanding gas during the combustion process. Passenger cars and commercial vehicles such as heavy trucks and buses integrate more than four pistons, depending on the number of cylinders. Being an integral part of the automotive engine, the market is poised to grow on account of the increasing sales and production of automobiles . (as per market reports) Pistons are cylindrical parts tightly fitting and moving within a cylinder that have the function to compress or move a fluid collected in the cylinder, as air or water, or to transform energy imparted by a fluid entering or expanding inside the cylinder, as compressed air, explosive gases, or steam, into a rectilinear motion usually transformed into rotary motion by means of a connecting rod. Piston Ring is the Ring on a piston sealing the gap between the piston and the cylinder wall having the following functions: Piston rings maintain gas compression between the piston and the

cylinder wall Piston rings usually make necessary minimum lubricating oil film for

preventing scuffing Piston rings transfer heat from the piston crown to the cylinder Piston rings prevent the piston from knocking on the cylinder wall The demand for automotive piston is driven by increase in sales & production of vehicles globally and advancement in technology such as integration of cooling channel in piston. However, technical advancement to downsize automotive engines and increase in penetration of electric vehicles hinder the growth of automotive piston market. The company is one of the leading players in the Piston and Piston Rings industry. With regards to the revenue contribution, Piston & Piston pins and Rings contributed 96.5% of the total turnover in FY17. Automotive Industry being the key end customer, growth of the company directly depends on the growth across the Auto sector. With the overall positive outlook towards the Auto sector, the company is well poised to growth opportunities going forward. Company’s product Category along with their production capacity & Distribution Network : The company manufactures range of piston rings for bi-wheelers, tractors, passenger cars and SUVs, CVs, locomotive engines, stationary engines and industrial. It offers range of light metal castings including cylinder blocks, cylinder heads for single cylinder engines and aluminium tube casings and aluminium crown handles for motorcycles. It produces range of sintered metal products such as valve train parts, transmission parts, lubrication pump parts and other engine / structural parts

CMP: Rs. 540 TARGET PRICE: Rs.750 TIME : 12 months

TM

Please Turn Over

September 14, 2017 PICK OF THE MONTH VOL-3, NO-16

Federal –Mogul Goetze (India) Limited BUY

Source: Market Research Report

Source: Market Research Report

Source: Company’s Website

About the company (contd.)

Production capacity :

Application of different products across segments:

Bi-wheelers Passenger Cars & SUVs Tractors Commercial Vehicles (HCVs, MCVs, & LCVs) Heavy output locomotive diesel engines Stationary engines Industrial Parent company holds strong: As indicated earlier, Federal-Mogul Goetze (India) Limited was established as a JV with Goetze-Werke of Germany which is now owned by Federal-Mogul Corporation. The parent company continues to support Federal Mogul with its technical expertise. With widely recognized brands, superior technology, strong distribution network and committed team of employees, the company is well positioned to take advantage of the opportunities and withstand market challenges. The company continuously works towards maintaining superior product quality, offer wide range of products at competitive prices, which will help it create sustainable profitable growth and also get a competitive edge in the market. The expertise and experience of the parent company in the industry definitely is an added advantage and an edge over its peers for Federal Mogul to grab the opportunities from the catered industries. BSVI: Implementation of the norm by April 2020: In order to fight the increasing pollution, the government has announced the implementation of Bharat Standard BS-VI by April 1, 2020. BS-VI is an equivalent of Euro-VI norms being followed globally. The Company perceives this as a huge opportunity and has already started development work with some OEMs in India, on new engine projects. Federal-Mogul is currently producing many of the Euro-VI engine parts in Europe and for comparable engine standards in North America. In India, the company expects to be prepared to supply the products meeting, BS-VI before the deadline fixed by the government. This would be an opportunity that the company is working to capitalize on going forward. Financials: In the past two years, the company has been reporting negative to flat numbers at the top-line. However, we expect this trend to change to positive gradually with the ramp up in the sector. Also, if one sees the 1QFY18, although the sales have been flat, the company has reported strong Ebitda margins at 15.7% compared to 13.2% in the same quarter last year, indicating the operational efficiency. The net profit also grew by 30% during the quarter. This clearly indicates that the performance of the company is picking up and is expected to continue going forward as well.

CMP: Rs. 540 TARGET PRICE: Rs.750 TIME : 12 months

TM

Please Turn Over

September 14, 2017 PICK OF THE MONTH VOL-3, NO-16

Federal –Mogul Goetze (India) Limited BUY

Product Capacity

Piston 13 Million Pistons per annum

Piston Rings 55 Million Rings per annum

Cylinder Liners 0.5 Million liners per annum

Source: Company’s Website Source: Annual Report

Source: Company’s Website

Risk and concerns:

Raw material price fluctuations Foreign currency risks Cyclical nature of the industry Technical intensive industry Increasing competition Emergence of electric and hybrid vehicles in future will be accompanied by elimination/reduction of piston’s use in engine Outlook & Recommendation: After the bad phase of the Auto sector, there is a gradual improvement been witnessed in the sector. This would also be a positive for the auto component sector, the performance of which is dependent on the Auto sector. The company is one of the leading players in the auto component space backed by the parent company’s experience and expertise. We feel the company stands to benefit going forward from the turnaround in the sector. We initiate a BUY on the stock with a target price of Rs750 over a 12 months horizon.

CMP: Rs. 540 TARGET PRICE: Rs.750 TIME : 12 months

TM

Please Turn Over

September 14, 2017 PICK OF THE MONTH VOL-3, NO-16

Federal –Mogul Goetze (India) Limited BUY

TM

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