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Buy Tube Investments of India; target of Rs 425: ICICI Direct

May 29
22:24 2020

ICICI Direct’s research report on Tube Investments of India

Tube Investments of India (TII), part of renowned Murugappa Group, has a diversified manufacturing presence across segments of cycles & accessories, engineering (precision steel tubes, strips), metal forming (door frames, fine blanking products, chains), gears & gearboxes. These four divisions contributed ~16%, ~46%, ~33%, ~5%, respectively, to gross consolidated revenue in FY20P. On overall basis, TII derives ~50% of revenues from auto space and remaining ~50% from non-auto space, including Railways. It is among top few players in each of its business divisions, including special gears through listed subsidiary Shanthi Gears. TII has, over the years, shown continuous improvement in capital efficiency (FY20P RoCE: ~18%) and cash generation (FY20P CFO: Rs 600 crore, 10% yield).

Outlook

Going forward, with TII being the sole credible bicycle player in the listed space, its strong focus on return ratios matrix (RoE, RoCE at ~18%) and cash generation ability (CFO yield at ~10%, FCF yield at ~6%), lead us to build a positive stance on the company. Consequently, we assign BUY rating on TII with a target price of Rs 425, valuing it at 26x P/E on FY20P EPS of Rs 16.3/share. Key risk to our call is more than expected delay in demand recovery in domestic automobile place and certain portion of TII’s topline susceptible to EV risk.


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