Indag Rubber Limited is an India-based company. The company manufactures pre-cured tread rubber, unvulcanized rubber strip gum, universal spray cement, tire envelopes, repair gum, and other accessories and equipment for the tire retreading industry. Close to 90% of the company's revenue is generated from the sale of pre-cured tread. Indag Rubber distributes its range of products under the Company’s three major brands, which include Indag, Zoma and Maxmile. The Company has organized its manufacturing operations into two geographical segments: Domestic (in India) and Overseas (Outside India). The Company’s manufacturing plant is at Nalagarh, Himachal Pradesh with a capacity of 13,800 MT for tread rubber, and 1,800 MT for rubber strip gums and 300 KL for rubber cement.
For 1QFY2016, Indag Rubber (IRL) reported a mixed set of result. The company reported a top-line growth of ~10% yoy (which is lower than our expectation), while its bottom-line grew by ~16% yoy on back of overall improvement in operating margin. Modest top-line growth: For 1QFY2016, IRL reported a top-line growth of 10.3% yoy to ~Rs64cr, which is slightly below our expectation of ~Rs68cr. However, we are seeing volume improvement since the last three quarters on the back of improvement in industrial activity in the country. Higher utilization in the transportation segment led to higher sales growth in retreading products. Strong operating performance and higher other income boost profitability: For the quarter, the company’s bottom-line came in at ~Rs8cr, up ~16% yoy (our estimate was of Rs7.5cr), owing to improvement in operating margin, and higher other income to Rs1.4cr (as against Rs0.1cr in 1QFY2015). Outlook and Valuation: Going ahead, we expect IRL to report a top-line CAGR of 16.5% over FY2015-17E to ~Rs329cr owing to recovery in commercial vehicle (CV) volumes in the domestic market. A recovery in CV volumes will aid the company considering that ~85% of IRL’s revenue comes from the medium & heavy commercial vehicle (MHCV) segment and ~5% of its revenue comes from the light commercial vehicle (LCV) segment. Further, the company would improve its volume growth in the treading segment on back of growth in road freight with growth in economic activity, increase in organized players’ market share, its strong distribution network, and with its strong branding. However, on the bottom-line front, we are not expecting strong growth as the excise duty benefits would subside post FY2016, thus impacting earnings. Hence, we are Neutral on stock.
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