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Tube Investments (TI) - Qtr. Update - Dtd. - February 05, 2013




Axis Capital Limited


05 Feb 2013





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Tube Investment’s (TI’s) standalone Q3 revenue disappointed as volumes declined across divisions due to weak consumer demand in cycles and lower offtake by automotive industry. Margin was under pressure due to (1) high power costs and (2) lower absorption of fixed costs. We reduce our FY13E and FY14E EPS to Rs 6 and Rs 6.9 (Rs 7.6 and Rs 8.2 earlier) to factor in the subdued performance. We also roll over our valuation to FY15E with revised SOTP-based TP of Rs 256 (Rs 231 earlier). We value core business at Rs 73/share (FY15 PE of 10x discounted by 15% pa), MS Chola General Insurance stake at Rs 54/share, Cholamandalam Investments and Finance stake at Rs 104/share, and Shanthi Gears stake at Rs 25/share. Maintain BUY given 40% upside from CMP of Rs 183. Performance of subsidiaries  General insurance business: Chola MS General Insurance Co. registered PAT of Rs 160 mn (Rs 20 mn in Q3FY12), which included Rs 170 mn of third party motor pool loss. We believe the general insurance business is poised to deliver > Rs 1 bn PAT going forward.  Shanthi Gears - TI has reconstituted the board, put a new management team in place, and rationalized manpower. Shanthi Gears (under erstwhile promoter) had shrunk its business due to which customers were unsure whether the company shall continue supplying to them. The new management team has met over 50 Top OEMs at their senior/board levels and addressed their concerns. SGL remains confident that client traction will improve which would lead to revenue and profit growth. Regards, Kashyap Pujara (ED – Midcaps) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1146 Farzan Madon (Asst VP – Midcaps) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1131

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