PPAP Automotive Ltd.

STOCK IDEA

Auto Ancillaries

Rating: BUY

Date
CMP (Rs.)
Target (Rs.)
Potential Upside

October 13, 2014

111
160
44%

BSE Sensex
NSE Nifty

26384
7884

Scrip Code
Bloomberg
Reuters
BSE Group
BSE Code
NSE Symbol

PPAP IN
PPAP.BO
B
532934
PPAP

Market Data
Market Cap.(Rs. Cr)
Equity Sh. Cap. (Rs Cr)
52 Wk High/Low
Avg. Quarterly Volume
Face Value (Rs.)

155
14.0
124.8/28
13900
10

Shareholding Pattern
(As on 30th Jun 2014)
FII
DII
Promoters
Public & Others
Total

0.0
1.1
63.1
35.8
100.0

Comparative Price Chart

350
300
250
200
150
100
50
Oct-13

Jan-14
PPAP

Apr-14

Jul-14

Oct-14

BSE Auto

Atul Karwa
Research Analyst
atulkarwa@systematixshares.com
Arun Gopalan
VP Research & Investments
arungopalan@systematixshares.com

Particulars

Sales
(` Cr)

PPAP Automotive Ltd. (PPAP) is the market leader in the Indian automobile sealing systems
space and is the principal manufacturer of Specialized Profiles and Extruded Products in
India, supplying to all the major Original Equipments Manufacturers (OEMs). It is the single
biggest supplier of automobile sealing systems to Maruti Suzuki India Limited, Honda Cars
India Limited, General Motors India Private Limited, Toyota Kirloskar Motor Private Limited,
Renault Nissan Automotive India Private Limited, Tata Motors Limited, Ford India Private
Limited and Mahindra and Mahindra Limited. It also manufactures Interior and Exterior
Injection Molded Products for the OEMs. It has a technical collaboration with Tokai Kogyo
Co, Japan for Automotive Sealing System and Nissen Chemitec Corporation, Japan, for
Injection Molded Products.. With the Indian automobile industry poised for good growth in
the coming years, we expect PPAP, with its five plants located in Delhi, Noida, Pathredi in
Rajasthan & Chennai, to see a strong uptick in earnings. We recommend a BUY on the
stock with a 44% upside in 12 months.
Ongoing cost control measures are contributing to restoring healthy EBITDAM:
Material cost of the company increased significantly from 53% of net sales in FY12 to 60% in FY13
impacting the margins. As a result PPAP has undertaken several efficiency improvement measures,
in FY14 which resulted in material cost declining to 58.1% of net sales in FY14. It has also
significantly invested in improving energy efficiencies which would lead to long term savings on
energy costs. We believe the company will further benefit from the implementation of these
efficiency improvement activities and expand its EBITDA margins to ~14.5% over the next couple of
years from 11.3% in FY14
Indian growth revival to lead to a recovery in automobile demand:
Demand for automobiles, the key sector to which the company caters to, have been on an uptrend.
Last three months have witnessed a yoy growth of 3.1%, 14.8% and 5% respectively for May, June
and July. With the overall macro-economic environment improving we believe automobiles will
witness a healthy growth in H2FY15 and FY16.
Deepening existing marquee relationships, gunning for new ones:
PPAP caters to all the major auto manufacturers in India. It derives ~50% of its revenues from the
largest manufacturer i.e. Maruti Suzuki. Honda Motors which is fast gaining market share in the
mid-size segment contributes to ~25% of the companys revenues. . The Company introduced new
technologies viz. SUS type Extrusion (Bright Stainless Steel type) and Slide Rail to meet the
demands of its customers for the passenger car segments. It is also looking to add other OEMs as
clients and the management is confident of adding these new customers by the end of FY15. This
would ensure topline growth for the company over the next few years.
Capital infusion in JV company to cater to growing demand:
The company is further strengthening its its 50:50 JV with Tokai Kogyo Co. Ltd. (Japan) and would
be investing ~Rs 15 cr towards infrastructure and enhanced working capital needs.
Valuation & Outlook: The revival in automobile demand and cost reduction measures undertaken
by the company are the key catalyst which would lead to improved margins going forward. At CMP
of 111 the stock is trading at PE of 8.3x of its FY16E earnings. We recommend a BUY at the
current levels with a target of Rs 160, an upside of 44%.

EBITDA
(` Cr)

EBITDAM
(%)

PAT
(` Cr)

PATM
(%)

EPS
(`)

BVPS
(`)

P/E
(x)

P/BV
(x)

RoE
(%)

FY13
FY14
FY15E

215.4
246.8
296.6

15.6
27.8
39.3

7.2
11.3
13.3

1.5
5.5
12.6

0.7
2.2
4.2

1.1
3.9
9.0

131.0
134.9
143.9

100.9
28.5
12.3

0.8
0.8
0.8

0.8
2.9
6.2

FY16E

341.0

49.5

14.5

18.6

5.5

13.3

157.2

8.3

0.7

8.5

PPAP Automotive Ltd

Company Background
PPAP Automotive Limited (PPAP) is the principal manufacturer of Automotive Sealing Systems,
Interior and Exterior Injection Molded Products. The Automotive Sealing system product range
includes Outer Belt Moulding, Inner Belt Moulding, Windshield Moulding, Roof Moulding, Quarter
Window Moulding, A-Pillar Garnish, B-Pillar Garnish, Body Side Moulding and Skirt Air Damper etc.
The Company introduced new technologies viz. SUS type Extrusion (Bright Stainless Steel type) and
Slide Rail to meet the demands of its customers for the passenger car segments. The Company also
manufactures Injection molded products like Door Trims, Interior Pillars, Rear Parcel Shelf, Trunk
Linings, and Fender Inner etc.
PPAP is the major supplier to major Automotive manufacturers in India. Its customers include
prestigious manufacturers like Maruti Suzuki India Limited, Honda Cars India Limited, General
Motors India Private Limited, Toyota Kirloskar Motor Private Limited, Renault Nissan Automotive
India Private Limited, Tata Motors Limited, Ford India Private Limited and Mahindra and Mahindra
Limited along with other OEMs. The Company also caters the requirements of their respective Tier 1
suppliers. The Company has technical collaboration with Tokai Kogyo Co. Ltd, Japan, for Automotive
Sealing System and Nissen Chemitec Corporation, Japan, for Injection Molded Products. The
Company also has a Joint Venture with Tokai Kogyo Co. Ltd, Japan for manufacturing EPDM
Rubber based Automotive System with products like Opening Trims, Hood Seals, Door Weatherstrip
and TPV Glass Run Channels.
PPAP had raised Rs 75 cr through an IPO in Dec-07 by issuing 50 lakh shares at a price of Rs 150
per share. In 2014 the company changed its name to PPAP Automotive Ltd and also sold off its non
core businesses viz.Power Distribution System business and White goods business incurring an
extraordinary book loss of Rs 5.5 cr. It has emerged as a focused automotive solutions player in its
segment.
BUSINESS:
PPAP has five manufacturing facilities which are located in New Delhi, Noida, Greater Noida,
Pathredi in Rajasthan and Chennai. All the plants are TS 16949, ISO 14001 and OHSAS 18001
certified. All the facilities are equipped with the latest technology available today for plastic extrusion
as well as injection molding.
The company has capability to extrude upto four materials in the same profile according to
customer specifications. It has capability of processing engineering plastics like PVC, PP, ABS and
TPO.

Extruded Products
TPO / PVC Products
Outer / Inner Belt Molding
Windshield Molding
Roof Molding
Slide Rail
Door Opening Trim
Air Spoiler / Dampener
Glass Run Channel
EPDM Products
Back Door Seal / Door Opening Seal /
Trim Door Opening / Special Profiles

Injection Molded Products

Gas Assisted / Engineering Plastic
products
Door Trim / Door Lining Assembly
Bumpers / Instrument Panels
Interior / In Capib products
Exterior / Under body products
A/B/C illar Garnish
Quarter Glass molding
Special Products
Door side protectors

Key Management Personnel :

Key Management personnel
Mr. Ajay Kumar Jain
Mr. Abhishek Jain
Mr. Manish Dhariwal

Designation
Chairman & Managing Director
Whole time Director
Chief Financial Officer

Systematix Shares & Stocks (I) Ltd

The Capital, A-wing, No. 603 606, Bandra Kurla Complex, Bandra (East), Mumbai 400 051.

PPAP Automotive Ltd

FINANCIAL PERFORMANCE
PROFIT & LOSS
Particulars
Operating Income
Materials consumed
Employee cost
Other operating expenses
EBITDA
Depreciation
EBIT
Interest
Other Income
Profit Before Tax
Tax
PAT
PAT after Min Int
BALANCE SHEET
Particulars
Share Capital
Reserves & Surplus
Total Shareholder funds
Minority Interest
Non Current Liabilities
Total borrowings
Deferred tax liabilities
Other long term liabilities
SOURCES OF FUNDS
Fixed Assets
Investments
Other Non-current Assets
Current Assets
Current Liabilities
Net Current Assets
TOTAL ASSETS

FY13
215.4
129.2
35.0
35.7
15.6
18.1
-2.5
1.1
4.2
0.6
-1.0
1.5
1.5

FY14
246.8
143.4
35.4
40.2
27.8
19.7
8.0
3.0
8.5
13.5
2.6
10.9
5.5

FY15E
296.6
169.1
42.1
46.0
39.3
23.0
16.3
6.4
6.8
16.8
4.2
12.6
12.6

(Rs Cr)
FY16E
341.0
192.7
47.7
51.2
49.5
25.1
24.4
8.3
8.7
24.8
6.2
18.6
18.6

CASH FLOW
Particulars

FY13

FY14

FY15E

(Rs Cr)
FY16E

Cash from oper act.

Cash from inv act.
Cash from fin act.
Net Change in Cash

19.1
(31.6)
9.5
(3.1)

36.7
(61.5)
20.6
(4.2)

23.0
(34.5)
18.6
7.2

37.4
(35.9)
6.7
8.2

FY13
14.0
169.4
183.4
0.0

FY14
14.0
174.9
188.9
0.0

FY15E
14.0
187.5
201.5
0.0

(Rs Cr)
FY16E
14.0
206.1
220.1
0.0

14.3
3.5
4.9

42.7
2.8
0.0

67.7
2.8
0.0

82.7
2.8
0.0

FY13
1.1
131.0
100.9
0.8
0.8%
-1.3%
12.5

FY14
3.9
134.9
28.5
0.8
2.9%
3.5%
7.0

FY15E
9.0
143.9
12.3
0.8
6.2%
6.1%
5.0

FY16E
13.3
157.2
8.3
0.7
8.5%
8.1%
4.0

206.1
140.9
0.7
14.1

234.4
166.6
24.5
6.4

272.0
178.6
24.5
5.9

305.6
178.5
34.5
6.8

16.7%
-48.7%
-88.0%

14.5%
78.2%
254.5%

20.2%
41.6%
130.5%

15.0%
25.7%
48.0%

74.8
24.5
50.4

87.8
50.9
36.8

98.5
35.6
63.0

124.8
39.1
85.8

7.2%
-1.2%
0.7%

11.3%
3.3%
4.4%

13.3%
5.5%
4.2%

14.5%
7.2%
5.5%

206.1

234.4

272.0

305.6

RATIO ANALYSIS
Particulars
EPS
BVPS
P/E
P/BV
RoE
RoCE
EV/EBITDA
Growth
Operating Income
EBITDA
PAT
Profitability
EBITDA Margin
PBIT Margin
PAT Margin
Stability
Debt/Equity
Current Ratio
Interest Coverage

0.1
3.1
-2.2

0.2
1.7
2.6

0.3
2.8
2.6

0.4
3.2
2.9

Systematix Shares & Stocks (I) Ltd

The Capital, A-wing, No. 603 606, Bandra Kurla Complex, Bandra (East), Mumbai 400 051.

PPAP Automotive Ltd.

Explanation to Ratings
BUY: TP>15%; ACCUMULATE: 5%<TP<15%; HOLD: -5%<TP<5%; REDUCE: -15%<TP<-5%; SELL: TP<-15%

DISCLAIMER
This report has been prepared by Systematix Shares & Stocks (I) Ltd and is meant for sole use by the recipient and not for circulation. The
information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources
believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or
implied, is made as to its accuracy completeness or correctness. All such information and opinions are subject to change without notice.
This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not
intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer to buy or sell any
securities or other financial instruments. However before taking any investment decision, investors are requested to consult their investment
and tax advisor/s.
This report is not directed to or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity
who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction,
availability or use would be contrary to law or regulation or what would subject Systematix Shares & Stocks (I) Ltd or its affiliates to any
registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country,
especially, USA, the same may be ignored and brought to the attention of the sender. Neither this document nor any copy of it may be taken
or transmitted into the United State (to U.S.Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada
or distributed or redistributed in Japan or to any resident thereof. The distribution of this document in other jurisdictions may be restricted by
law, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.
This document may not be reproduced, distributed or published for any purposes without prior written approval of Systematix Shares &
Stocks (I) Ltd. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on,
directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose.
Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse
effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are
influenced by foreign currencies effectively assume currency risk.
This document should not be considered to be taken as an offer to sell or a solicitation to buy any security. Systematix Shares & Stocks (I)
Ltd may from time to time solicit from or perform broking or other services for any company mentioned in this mail and/or its attachments.
Systematix Shares & Stocks (I), its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or
the damages sustained due to the investments made or any action taken on basis of this report including but not restricted to fluctuation in
the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc.
Systematix Shares & Stocks (I) Ltd has two independent equity research groups: Institutional Equities and Private Client Group. This report
has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be
contrary with the views, estimates, rating and target price of the Institutional Equities Research Group of Systematix Shares & Stocks (I) Ltd.
Systematix Shares & Stocks (I) Ltd and our affiliates, officers, directors, and employees worldwide may: (a) from time to time, have long or
short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction
involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company
(ies) discussed herein or act as advisor or lender / borrower to such company (ies) or have other potential conflict of interest with respect to
any recommendation and related information and opinions. The views expressed are those of analyst and the Company may or may not
subscribe to the views expressed therein.
Systematix Shares & Stocks (I) Ltd and other group companies, its directors, associates, employees and analysts including analyst/s
prepared this report may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make
sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations
described in this report.