Thread by @alphaspotcap

Tube Investments of India Ltd🇮🇳

A Detailed Thread🧵👇🏻:
#investing #stockstowatch

(1/15)

About:

Tube Investments (TIINDIA) is a flagship company of the Murugappa group.

It has a diversified range of products under its three verticals – engineering, metal forming products, bicycles & others

It is the market leader in manufacturing precision steel tubes.

(2/15)

Growth Model:

The TI way of growth has 3 components – TI-1 (existing businesses), TI-2 (a venture capital style model) & TI-3 (a private equity style model based on acquisitions). The underlying philosophy is to invest cashflows of the existing businesses (TI-1)….

(3/15)

[Continued]

….which does not need much capital for growth, to: a) seed several new platforms for long-term growth (under TI-2; e-3Ws, e-tractors, Optic lens, TMT bars & Truck body building), and b) acquire stressed assets (under TI-3; acquired CG Power in Nov’20).

(4/15)

Future Growth areas for Tube Investment:

• Electric 3Ws
• Optical Lens for Autos
• Electric Tractor
• TMT Bars
• Truck Body Building

(5/15)

CG power successful acquisition:

• TIINDIA acquired CG Power in Nov-20, with 58.6% stake at implied MCap of ₹13.7b

• CG Power’s FY21 adj. PBT loss was ₹1.16b

• CG Power’s FY22 PBT is ₹5.3b

• CG Power’s MCap now stands at ₹232b (>16x)

(6/15)

Revenue Breakup of TI FY22:

• Engineering: 57% of revenue share

• Metal Formed: 19% of revenue

• Cycle: 15%

• Others: 9%

(7/15)

Engineering Business:

• Engineering business is largely focused on Autos (~70%) & CV (~30%)

• TI has outperformed auto industry over last few years

• It exports to SE Asia (incl. China), EU & USA. Export share in revenue is 20% in 4QFY22 v/s 10% YoY

(8/15)

Metal Formed Business:

• Metal Formed business is focused on Autos & railways

• Railways coaches form a big opportunity as Indian railway is replacing steel coaches by stainless steel (~50k coaches). There are ~5 players in the segment & TI has ~25% market share

(9/15)

Mobility Business:

• The Mobility business currently consists of just cycles. However, the upcoming launch of e-3Ws will be under this division

• Strong brands it sells are BS, Hercules, Ladybird, Montra, Bianchi, Schwinn, Cannondale, Ridley, GT and Mongoose.

(10/15)

Key Strengths:

• The three bucket growth strategy
• Diversified business lines with multiple products
• Well established market position in all the operating segments
• Comfortable capital structure; strong financial flexibility and lender/investor comfort

(11/15)

Challenges:

• Earnings vulnerable to inherent cyclicality in the auto industry

• Potential vulnerability of earnings to supply chain disruptions and other headwinds like commodity price movements

• Increase in net debt levels due to the CG Power acquisition;

(12/15)

• TMT business is operating in a
contracting margin business

• Truck body building business scalability is a challenge as majority of the industry is unorganized

(13/15)

Key Ratios:

• RoCE: 29.4%
• RoE: 28.1%
• PEG: 1.70
• Sales Growth 3 Years: 29.5%
• Interest Coverage: 19x
• Debt to Equity: 0.28
• Price to Sales: 3.75
• Debtor Days: 52
• Days Payable: 103
• OPM: 11%

(14/15)

Shareholding Pattern:

• Promoters: 46.45%
• FIIs : 25.90%
• DIIs : 14.70%
• Public: 12.95%

(15/15)

Considering the phenomenal run this stock has seen over the past 3 months, where do you see it in the next 12 months?

@caniravkaria @chartmojo @kuttrapali26