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					India Equity Report | Company Update | Engineering - Heavy




TIL Ltd.                                                             ` 546                     Gateway to Prosperity


Movers & Shakers !!!                                   Accumulate                                  April 15, 2011

Company Background
                                                                                            Kaustubh Naik
TIL Ltd.(TIL) formerly known as Tractors India, is one of the oldest construction
                                                                                          kn@indiratrade.com
equipment (CE) suppliers in India. It was started by a group of Scotsmen in
1944, basically as a dealer of Caterpillar Tractor Company, US, for their                     Arpit Jain
earthmoving equipment and spare parts. In Nov, 1955, it became a public limited           aj@indiratrade.com
company by the name Tractor India. Today, it caters to requirements of the
core sectors of the economy, such as power, steel and infra.                      Info Codes
The Company's business is organized into three major segments i.e. Material           Reuters                TILL.BO
Handling Equipment (MHE), Construction Equipment (CE) and Power Sys-                  Bloomberg              TIL@IN
tems Solutions (PSS) etc. It has been the dealer of Caterpillar in India since        NSE                    TIL
1944. TIL manufactures and markets mobile cranes of 10 MT to 100 MT in                BSE                    505196
diesel, electric and hydraulic versions and also markets earthmoving equip-
ment of Caterpillar and Hindustan Motors. The company has a technical col-            Market Data
laboration with Grove Europe, England, for the manufacture of higher tonnage          52 Wk Range (`)        : 750 / 350
cranes as well as with Boss Group, UK, to manufacture and market a total              Shares in Issue (mn) : 10
range of Forklift Trucks. The Company has also diversified into manufacturing         Mkt. Cap (` bn)        : 5.61
of process equipment for supply to the chemical industry.                             BSE 2 Wk Avg Vol       : 1130
TIL along with its subsidiaries is well connected with a vast network over 60
branches and area offices to ensuring maximum coverage. With the economy              Share Holding Pattern (%)
on recovery path and likely strong capex on the infrastructure and industrial         Promoters              : 51.69
fronts, we expect demand for CE to increase and therefore recommend to                DIIs                   : 22.23
accumulate this stock.                                                                FIIs                   : 1.03
Financial Performance                                                                 Others                 : 25.05
TIL posted decent result for the quarter ended on December 2010. It has
                                                                                      Investment Theme
reported a sales turnover of ` 532.8 mn and a net profit of ` 95.9 mn for the
                                                                                      TIL formerly known as tractor India ltd
quarter ended Dec 2010 boosted by surge in recurring income. The company
                                                                                      was initially known for the dealership of
transferred their dealership business of caterpillar to Tractors India Pvt Ltd on a
                                                                                      caterpillar, the world leader in the CE
going concern basis with effect from 01 April 2010. Therefore, the current quar-
                                                                                      segment. The dealership has continued
ter ended on December 2010 is not comparable with the corresponding previ-
                                                                                      since then however the company has
ous quarter. On a consolidated basis, the revenues of the company stood at `
                                                                                      developed a strong portfolio of products
3.96 tn its EBDITA margin fell marginally during the quarter due to higher sales
                                                                                      as well as diversified into related
of CE as against previous quarter. This sector generally has lower margin com-
                                                                                      segments. Today, TIL has strong
pared to other segments which dragged the overall margins for the company.
                                                                                      presence in the MHE, CMS as well as
As a result in the consolidated results, the company reported net profit of `
                                                                                      PSS segment. It has also small
154.7 mn in the quarter ended on December 2010.
                                                                                      exposure to renting business as well.
Investment Rationale                                                                  The Spare parts and other services offer
  Bright outlook for Segments                                                         good growth potential along with
  During FY2008-10, TIL’s sales remained largely flat on account of the slow-         increasing the margins. With the Indian
  down witnessed in the economy, which resulted in major industrial capex             economy remaining buoyant and the
  getting delayed. TIL has been observing sluggish demand for road equip-             capex started rising up, we believe the
  ment. However demand is picking up in other segments like ports. Port               demand for CE would grow, therefore
  infrastructure comprising cargo handling, container, bulk and liquid handling       recommend to accumulate TIL.
  systems are expected to witness robust investment going ahead. Given that
                                                                                             S’TIL’l with Caterpillar !!!
TIL
 private sector participation in ports is high, we expect investments would                         TIL segments
 continue. Going forward, on the back of recovering economy, rising infra-
                                                                                        Material Handling Solutions
 structure spend and prevailing high capacity utilisation, industrial capex is
                                                                                        The segment primarily comprises Pick-
 expected to pick momentum. Overall, TIL’s revenues are expected to im-
                                                                                        n-Carry (PnC) cranes & truck mounted
 prove and register healthy growth.
                                                                                        cranes and others. The Material Han-
 Sales & Services
                                                                                        dling Solutions division of TIL is en-
 Apart from pure product sale, TIL also earns revenue through customer sup-
                                                                                        gaged in manufacture and marketing
 port agreements (CSA) and, maintenance and repair contract (MARC) and
                                                                                        of a comprehensive range of material
 supply of spare parts for products under CMS and PSS. This business
                                                                                        handling equipment and lifting solutions
 fetches high margins compared to the other main products. Considering the
                                                                                        with integrated customer support. It is
 fact that it has sold significantly higher number of CE this quarter as against
                                                                                        a leader in truck mounted cranes with
 previous quarter, we expect this business to remain buoyant in the future.
                                                                                        a market share of approximately 60-
 Renting business form very small part of TIL’s revenue at 2-3 %. However
                                                                                        70%.
 with the user industries increasingly preferring to rent the huge construction
 equipment to minimize investments and register higher utilization of assets            CMS Division
 on account of renting the construction equipment, the rental market would              TIL is the exclusive dealer for Caterpil-
 grow in India. This sector also has better margins than others hence we                lar products in North and East India,
 expect it to help company improve its margins.                                         Bhutan and Nepal this is crucial con-
 Capex                                                                                  sidering the large mines in the North-
 Considering the potential for growth in demand, TIL plans to expand capacity           East part of India. Under this division,
 by setting up a new manufacturing facility in Kharagpur, West Bengal at a              TIL supplies a comprehensive range of
 planned capex of ` 3 bn over 3 phases. We believe that given TIL’s comfort-            Caterpillar construction and mining
 able debt: equity ratio of 0.4x, it is well positioned to raise further debt to fund   equipment as well as engines and gen
 Capex. Management has been evaluating various options available for fund-              sets.
 ing the capex requirement. Company has taken the approval from the share-              PSS division
 holders for raising equity up to maximum of ` 2.5 bn through QIP route.                The Power Systems Solutions caters
 Valuations                                                                             generators need in the North and East
  On the valuation front TIL is trading at a discount to peers mainly due to the        India, Bhutan and Nepal. It also pro-
  risk of termination or discontinuance of the CAT dealership. However, this            vides standby applications in diesel,
  dealership has been there since 1944 and TIL has developed strong network             gas and heavy fuel configurations as
  and support infrastructure for caterpillar in India. Further, the Management          well as package a range of gensets
  has stated that the sales mix of the company is likely to get restructured            undertaking turnkey projects and pro-
  from currently 80% of Caterpillar business and 20% of MHS business to                 viding after market support under one
  50% of Caterpillar and 50% of MHS business in next 4-5 years. A strong debt           umbrella. Availability of gas & the
  to equity ratio gives it enough play to source the funds to expand its opera-         government's focus on the power sec-
  tions. Going forward, we believe that the other segments of company would             tor through "Power for all by 2012" is
  contribute more in the coming years.                                                  expected to drive the growth in this
  Key Financials                                                                        segment.

  Year Ended 31st                      Mar 08           Mar 09           Mar 10         CE renting business
Revenue (` mn)                             7321.6           8529.4          8743.8      The key equipment rented out in this
Rev. growth (%)                              26.47           16.50             2.51     segment include, backhoe loaders,
EBITDA (` mn)                                783.0           852.8            468.6     pick-and-carry (PNC) cranes, excava-
Net profit (` mn)                            322.4           322.7            468.6     tors, motor graders and vibratory com-
                                                                                        pactors. Currently, there are few
Shares outstanding (mn)                       10.0            10.0             10.0
                                                                                        organised players in this segment like
EPS (`)                                       32.1            32.2             46.7
                                                                                        TIL, Quippo Infrastructure Equipment,
EPS growth (%)                               70.25            0.09            45.21
                                                                                        Sanghvi Movers (for cranes), ABG
P/E (x)                                       11.7              2.6             7.1
                                                                                        Infralogistics and GMMCO.
EV/ EBITDA                                    49.4             11.4            73.2
ROCE (%)                                     25.46           17.43            18.72

                                                                 2
TIL


Financial Statements
      Income Statement                                                                 (` mn)
               Year end                     Mar 08       Mar 09   % Chg     Mar 10    % Chg
               Total Sales + Excise         7424.7       8620.3    16.10    8637.6      0.20
               Other Income                  186.4        155.7   (16.47)    244.6     57.10
               Change in Stocks              333.7        252.9   (24.21)    138.0    (45.43)
               Raw Material Con.            1472.2       1497.0     1.68    1300.8    (13.11)
               Employee Exp.                 468.7        652.4    39.19     804.8     23.36
               Indirect Taxes                304.4        261.2   (14.19)    146.0    (44.10)
               Other Exp.                   4916.5       5765.5    17.27    6300.0      9.27
               Operating Exp.               6828.1       7923.2    16.04    8413.6      6.19
               Operating Profit              596.6        697.1    16.85     224.0    (67.87)
               Total Interest                166.3        203.9    22.61       0.0   (100.00)
               Gross Profit                  616.7        648.9     5.22     468.6    (27.79)
               Net Dep.                      114.1        143.2    25.50       0.0   (100.00)
               Total Taxation                180.2        183.0     1.55       0.0   (100.00)
               Net Profit/Loss               322.4        322.7     0.09     468.6     45.21


      4 Years Balance Sheet                                                            (` mn)
               Balance Sheet as on 31st                  Mar 07   Mar 08    Mar 09   Mar 10
                            SOURCES OF FUNDS             1622.8   2025.1    2648.0    3002.8
               Equity Share capital                        97.3    100.3     100.3     100.3
               Share Application Money                      0.0      0.0       0.0       0.0
               Preference Share Capital                     0.0      0.0       0.0       0.0
               Reserves & Surplus                         679.8   1050.2    1325.9    1812.2
               Loan Funds                                 841.3    749.5     772.7     495.5
               Unsecured Loans                              4.4    125.1     449.1     594.8
                                  USES OF FUNDS          1622.8   2025.1    2648.0    3002.8
               Gross Block                               1233.4   1411.7    1609.6    1912.8
               Less : Revaluation Reserves                 75.1     73.5      72.0      70.4
               Less : Accumulated Depreciation            503.0    578.6     688.9     822.8
               Net Block                                  655.3    759.6     848.7    1019.6
               Capital Work in Progress                     8.9    105.8     187.3     195.4
               Investments                                 74.9     74.9      74.9      75.0
               Current Assets                            2704.0   2970.6    3371.0    4096.9
               Less : Current Liabilities                1820.3   1885.8    1833.9    2384.1
               Total Net Current Assets                   883.7   1084.8    1537.1    1712.8
               Misc. Expenses not written                   0.0      0.0       0.0       0.0
                                             NOTE
               Bk Val Unquoted Investments                 74.2     74.2      74.2      74.3
               Mkt Val. Quoted Investments                  1.5      2.1       1.8       3.1
               Contingent Liabilities                     166.8    255.7     392.0     427.5
               Dividend (%)                                  30       40        40        60



                                                     3
TIL

       Quarterly Income Sheets                                                                                 (` mn)
                   Quarter Ended                                Sep 09        Dec 09         Mar 10          Jun 10
                   Net Sales                                    2776.50       385.10          527.60          532.80
                   Cost Of Sales                                2397.50       339.40          462.60          468.20
                   Operating Profit                              379.00         45.70          65.00           64.60
                   Recurring Income                              151.00          4.50           1.20           94.60
                   Adjusted PBDIT                                530.00         50.20          66.20          159.20
                   Financial Expenses                             30.10          4.20           3.20            5.00
                   Depreciation                                   43.20          9.50           9.90           10.60
                   Other Write Offs                                0.00          0.00           0.00            0.00
                   Adjusted PBT                                  456.70         36.50          53.10          143.60
                   Tax Charges                                   176.50         12.80          18.20           47.70
                   Adjusted PAT                                  280.20         23.70          34.90           95.90
                   Non Recurring Items                             0.00          0.00           0.00            0.00
                   Other Non Cash Adjust                           0.00          0.00           0.00            0.00
                   Net Profit                                    280.20         23.70          34.90           95.90




   52 Week Index Relative Percentage Appreciation




                                                    TIL vs SENSEX

Risks Associated
  Cheaper Imports from China
  The Chinese market has many home-grown players with huge capacity coupled with strong cost advantage. Many of
  these players have also entered India and have been increasing their share.
  Cancellation of dealership
  TIL has been the authorized dealer of caterpillar since its establishment. However the dealership agreement with CAT
  has no time-line specified. Hence, there exist possibilities of CAT canceling the dealership with minimum notice period.
  This could seriously dent TIL’s reputation as well as revenues.
  Fluctuation in Raw material prices
  Around 30% of TIL's cost of material are denominated in currencies other than the rupee. Hence, any volatility in the
  exchange rate could impact the company's profit. Any abnormal up-move in the basic metal prices could adversely
  impact the company’s operating margins.


                                                            4
TIL
   In a Nutshell
   TIL formerly known as tractor India ltd was established in 1944 mainly as a dealer company of Caterpillar in India.
   Today it is a major construction equipment provider in India. The company has expanded into MHS, CE & PSS
   segment building a strong product portfolio. It has also over the years entered into agreements, joint collaboration with
   the best player in the industry worldwide. The spare parts and services segment of the company, though form a small
   part of revenues as of now, has a great potential to be a core segment of the company. As the infra players have started
   to prefer to rent the huge CE machineries instead of buying it, the renting business also offers good growth potential.
   The buoyant Indian economy is expected to continue to grow at around 8%. This gives infra segment huge opportunities.
   The capex projects which were delayed due to economic downturn in the last couple of years have also started to pick
   up momentum. TIL has also planned a capex worth ` 2.5 bn to support the growing demand. The valuations of the stock
   look quite attractive as it is trading at a discount compared to its peers. We believe going forward, the company to post
   excellent performance. Therefore, we recommend to accumulate the stock.



   Indira Group Offices
     Registered Office                       : Singh House, 3rd Floor, 23/25 Ambalal Doshi Marg, Fort, Mumbai 400023
                                                Tel : +91-22-22656812                    Fax : +91-22-22656985                     Email : im@indiratrade.com

     Administrative Office                   : Ramavat House, E-15 Saket Nagar, Indore 452018
                                                Tel : +91-731-2566361                    Fax : +91-731-2562117                     Email : ii@indiratrade.com

     Institutional Dealing Unit : Africa House, 3rd Floor, 5 Topiwala Lane, Lamington Road, Mumbai 400007
                                                Tel : +91-22-30080675                    Fax : +91-22-23870767                     Email : ie@indiratrade.com


   Rating Interpretation
     Buy        : Expected to appreciate 20% or more over 12-months                         Reduce : Expected to depreciate up to 10% over 12-months
     Accumulate : Expected to appreciate up to 20% over 12-months                           Sell       : Expected to depreciate 10% or more over 12-months
     Trade Buy : Expected to appreciate more than 10% over 45-days                          Trade Sell : Expected to depreciate more than 10% over 45-days


   Disclaimer
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