Pix Transmissions Ltd. - Research Report

Private Client Research

Rating

Buy

Sector

Rubber Products

Company

Pix Transmissions Ltd.

Rubber Products


September 04, 2017

Sensex: 31702.25


CNX Nifty: 9912.85

NSE: Not Listed


BSE: 500333

Reco Price
Rs. 136.50
Price Target (1.5 - 2 Years)
Rs. 273.00
Upside
100.00%

Date

September 04, 2017

Sensex

31702.25

CNX Nifty

9912.85

Exchange

Code

NSE

Not Listed

BSE

500333

Stock Data

CMP (Rs)
133.55
Face value (Rs)
10
52 Week Range (Rs)
160.00 - 48.00
Market cap (Rs Crores)
181.96
Price To Book Value (x)
1.20
P/E Ratio (x)
13.40
EV/EBIDTA (x)
6.10

One Year indexed Stock Performance

Pix Transmissions Ltd. Sensex
Pix Transmissions Ltd.
Return (%)
1m
3m
12m
36m
Absolute
-3.75
-5.92
137.00
156.33
Sensex
-1.93
1.25
9.40
17.04

Shareholders

(in %)
30-June
Promoter
60.89
Public
39.11
Others
0
Total
100

+91 22 6639 3000

research@stockaxis.com

Specialty belts, strong channel partners and support from the automotive industry will lead to future growth of the company.

Specialty belts to boost revenues:
The company has incurred an expenditure for the development of production processes for various types of newer belts, for the local and as well as the export market. It intends to manufacture specialty belts for Hi-Tech applications and innovations that are budding in the power transmissions industry. It is also intends to manufacture Maintenance-Free belts for the new generation packaging machines, apart from EPDM (Ethylene Propylene Di-ethyl Methane) rubber cover belts for the automotive industries. These belts are expected to withstand higher temperatures and will have a better longevity than its peers.

All above mentioned are new generation products that the company is now proceeding to manufacture. These are set to take care of the future needs of the power transmissions industry.

Strong distribution channels with global presence:
Considering Pix's global customer base, the company has backed its products, by building an impressive support infrastructure in several key markets across the globe, including UK, Germany, and UAE. Each of these location houses has a distribution centre and is equipped to provide technical, commercial, and logistical support. Pix is perhaps the only Indian company in its space to exhibit such high levels of infrastructure support, beyond the domestic region.

The key strength of the company is its growing network of independent, committed, and loyal 250 channel partners, in India and over 80 countries worldwide.

Growth in Automotive and Agriculture Industry:
Pix transmissions manufactures an exhaustive range of Automotive & Agricultural Belts, apart from producing almost the entire range of vehicle engines. These belts are available for two-wheelers, cars & vans, trucks & buses, heavy and light duty vehicles. It also has a huge range of belts covering the entire spectrum of agricultural applications, from Harvester Combines to the Tractors.

We are optimistic on the growth and development of the automobile industry, as well as agriculture, where we expect the passenger vehicle production to increase at a CAGR of 31% during FY16-20. Commercial vehicle production is expected to register a CAGR of 35.5% during FY16-20, whereas the Two and Three wheeler production is projected to expand at a CAGR of 15.4% during the same period. This will have a positive impact in the turnover and profitability of Pix transmissions Ltd.

Plant Automation & Specialty Belts to bolster financials:
The cutting edge technology adoption in manufacturing and packing will improve quality of products and also save costs. The company is converting its plant into a fully automated one, to become cost efficient and improve on production and productivity. It has hired best talents available in the industry, both, in production and marketing, and we expect reasonable growth in the both.

The company has recently forayed into the specialty belts segment, which has lucrative margins. It has a strong balance sheet with a cash & cash equivalent component of Rs. 37.59 crores. The company is also focusing on better working capital management and debt reduction which will boost the profitability going forward.

 

Industry

The new trend in the automobile industry is to downsize engines, thereby reducing fuel consumption and carbon emissions. Downsizing of engines mandates the use of high horsepower engines. This has made rubber transmission belts crucial to automobile manufacturers.

Compared to chain drives, rubber transmission belts have low noise operation and stable and non-slippery drive. They do not require lubrication and are light in weight. Thus, rubber transmission belts help save energy.

The rubber transmission belt market is fragmented with a high number of manufacturers scattered throughout the world. Asia Pacific is the largest manufacturer of rubber transmission belts with China being the dominant player in the market. Countries such as India, Thailand, and Malaysia use a significant proportion of natural rubber in their rubber belt formulations. Among the consumers of rubber transmission belts, China is the leader, followed by the U.S. and Japan. Europe is witnessing a higher demand due to the increasing use of rubber transmission belts by automobile manufacturers in the region.

Profile

Pix Transmissions Ltd., stared in 1981 as a manufacturer of wrap belts and is the leading manufacturer of Belts and related mechanical Power Transmission products in India. It established 1st overseas venture for PIX by incorporating PIX Europe Ltd. in Ipswich, UK in April 1999 and by July 1999 commenced trading at PIX Europe with full range of PIX Products. In April 2002 it expanded operations by acquiring Distag Euro Ltd. in UK & Established operations in mainland Europe by incorporating PIX Germany GmbH. In May 2007 it further penetrated in the Hydraulics market by acquiring Belfast-based Flexequip Hydraulics Ltd.

Pix Transmissions Ltd. enjoys significant brand equity in the Power Transmissions industry, with strong local as well global presence.

Profit & Loss Statement:- (Consolidated)

(Rs Crores)

DESCRIPTION Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 E Mar-19 E
Net Sales 193.92 203.63 217.76 227.90 250.69 288.29
Growth (%)   5.01 6.94 4.66 10.00 15.00
Total Expenditure 161.20 168.47 184.06 182.89 200.00 230.63
EBITDA 32.73 35.16 33.70 45.01 50.69 57.66
% Margin 16.88 17.27 15.48 19.75 20.22 20.00
Other Income 3.67 2.62 3.18 2.50 2.50 2.50
Operating Profit 36.40 37.78 36.88 47.51 53.19 60.16
Interest 16.68 19.86 18.16 14.02 13.50 13.00
PBDT 19.72 17.92 18.72 33.49 39.69 47.16
Depreciation 13.05 11.90 12.03 12.04 12.00 11.90
Profit Before Taxation & Exceptional Items 6.67 6.02 6.70 21.45 27.69 35.26
Exceptional Income / Expenses 0.00 0.00 0.00 0.00 0.00 0.00
Tax -0.96 2.58 3.04 7.08 8.97 11.60
Profit After Tax 7.63 3.45 3.66 14.37 18.72 23.66
Adjusted EPS 5.34 2.53 2.69 10.55 13.74 17.37
Source: Stockaxis Research, Company Data

Valuation

PIX Transmissions Ltd. enjoys significant brand equity in the Power Transmissions industry, with strong local as well global presence.

We Initiate 'BUY' on attractive valuations with Target Price of Rs 273 based on 15.70x FY19E EPS. The stock trades at 9.95x FY18E and 7.85x FY19E EPS.