SML Isuzu: PCG Research
SML Isuzu: PCG Research
SML Isuzu: PCG Research
PCG RESEARCH
SML Isuzu
Bloomberg SM IN SMLI manufactures a range of vehicles such as trucks, buses and ambulances. The company has launched
products like 4WD, Samrat, Sartaj, Dual Cab, Supreme8 tonner, Truck Super 12, Super ALFD and many
CMP as on 27 Jan 17 1202
more. Companys products finds its buyers in countries such as Bangladesh, Nepal, Nigeria, Ghana, Zambia,
Equity Capital (Rs mn) 144.7 West Indies, Sri Lanka etc.
Face Value (Rs) 10
Investment Rationale:
Equity O/S (mn) 1.45
Economic growth will drive growth in CV Segment: Economic growth in the medium to long term would
Market Cap (Rs mn) 17401.4 be driven by infrastructure investments. And this trend would generate increased demand for commercial
Book Value (Rs) 235 vehicles in coming years. Apart from macro-economic factors, implementation of emission (BS-IV norm) &
anti-overloading norms, scrapping regulations for older vehicles and changing landscape of the logistics
Avg. 52 Week Volumes 97814
industry towards an organized one would continue to support demand for CVs.
52 Week High 1434
Capacity Expansion: We expect SMLs capacity utilization to improve in near future. The board has already
52 Week Low 645 approved a proposal to invest Rs 300mn to expand the capacity of its plant from 18,000 units to 24,000
units p.a. The expansion will enable to meet the high demand during the peak season and reduce inventory
build-up and its related costs. The new production line will become operational by FY18.
Shareholding Pattern (%)
New Launches: The Company has upgraded product range to stay relevant and competitive against larger
Promoters 44
peers. Recently, the company has launched Ecomax Bus which is designed for tours and travel operators and
Institutions 7.5 staff shuttle operations. This bus will compete with Force traveler, Tata Motors City ride, Tata Motors Winger
and Mahindra tourister. Market size of this segment buses (upto 5 ton bus category) are ~2200
Non Institutions 48.5
buses/month and SMLI is expecting to clock ~300 units in coming months.
PCG Risk Rating* Yellow Steady Growth rate: Company has maintained healthy top and Bottom line growth over the period FY13-
* Refer Rating explanation 16. Topline grew at 5% and Bottom-line Grew at 12% CAGR over the same period. The Company has very
minimal debt and paying healthy dividend to its shareholders since 2000. SML Isuzu has sold total 12700
units (7% YoY) in FY16 and according to our estimates it will cross the 20000 till FY19E. ROE and ROCE rose
Nisha Sankhala
to 16% & 15% compare to previous 14.4% & 12.8%. We expect both to reach at 25.8% & 22.2% till FY19E.
nishabenshankhala@hdfcsec.com While Revenue and Profit are estimated to post CAGR of 21% and 38% over FY16-19E.
Truck segment which contributes ~ 47% of overall volume, presence in 5.5-10 MT categories, given low
ticket offerings and 95% finance through bank, could be relatively insulated in terms of demand impacts. As
per our channel checks, LCV cargo demand fell by 30% owing to demonetization issue but situation will
improve in the next two months.
Improved capacity utilization, expanding dealership network and new product launches (with focus on
improved cabin and fuel efficiency) bode well for the growth of SML in times to come. Currently the stock
trades at ~12.8x of FY19E. We recommend SML Isuzu to BUY between the price bands of Rs. 1120 - 1070
for the Target price of Rs. 1432 (at ~15.3x) for next 12 Months time period.
H1 FY17 Update:
In 1HFY17, the company reported 19.8% YoY growth in top line and 45% growth in bottom line. SMLIs
market share in the overall bus segment increased to 9.2% in H1 FY17 vs. 8.5% in H1 FY16 and volume
jumped by 14% YoY to 4744 units. The company is also gaining traction in cargo segment. Sales volume in
cargo segment jumped by 34% in H1 FY17 to 3360 units with growing acceptance of its Super Supreme,
Cosmo, Sartaj and Prestige premium trucks.
Volume Assumptions:
(in units) FY15 FY16 FY17 FY18E FY19E
Buses 7,759 6,789 7,726 8,892 10,018
% YoY 23.90% -12.50% 13.80% 15.10% 12.70%
Trucks 3,692 5,408 6,902 8,494 10,250
% YoY 18.00% 46.50% 27.60% 23.10% 20.70%
Domestic volumes 11,451 12,197 14,628 17,386 20,268
% YoY 22.00% 6.50% 19.90% 18.90% 16.60%
Exports 370 503 490 489 522
% YoY -0.30% 35.90% -2.60% -0.20% 6.70%
Total sales 11,821 12,700 15,118 17,875 20,790
% YoY 21.10% 7.40% 19.00% 18.20% 16.30%
Source: Company, HDFC sec Research
Volume (units) % YoY - RHS Net ASP (Rs '000) % YoY - RHS
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
Source: Company, HDFC sec Research Source: Company, HDFC sec Research
Strong Shift towards Cargo Segment Tonnage Mix Was Adverse On YoY Comparison
32 27 32
80% 37 43 80% 43 55
44 34 44 39 39 47
52 55 43 45
67
60% 60%
40% 40%
68 73 68
63 57
56 57 66 56 61 53 45
48 45 57 61 55
20% 20%
33
0% 0%
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
Source: Company, HDFC sec Research Source: Company, HDFC sec Research
Rating Chart
R HIGH
E
T
U MEDIUM
R
N LOW
LOW MEDIUM HIGH
RISK
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