Rane Brake Lining Limited is an India-based company, engaged in the manufacture of friction material products. The Company’s products include brake linings, disc pads, clutch facings, clutch buttons, brake shoes and railway brake blocks. The Company’s products are used in passenger cars, utility vehicles, commercial vehicles, two wheelers and railways. The Company is a subsidiary of Rane Holdings Limited. The Company has four manufacturing facilities located in Chennai, Hyderabad, Puducherry and Trichy. The Company exports its products to around 15 countries. The Company’s subsidiaries include Rane (Madras) Limited (RML), Rane Engine Valve Limited (REVL) and Rane Holdings America Inc. (RHAI).
Results in line with estimates: For 1QFY2016, Rane Brake Lining (RBL) posted an inline set of numbers. Revenues grew marginally by 2% yoy to Rs104cr, slightly missing our estimate of Rs110cr. Both the key segments, viz OEM and aftermarket space, accounting for about 85% of revenues, grew marginally by 4% and 3% respectively which led to a muted top-line performance. Further, decline in other segments viz Railways (dipped by 3%) and exports (fell sharply by 16%) dragged the top-line. Operating margins at 10.7% improved marginally by 30bp yoy and were inline. Localisation initiatives led to lower raw material costs, thereby leading to margin improvement. Also, higher other income further boosted profitability. Other income, at Rs0.7cr, doubled on a yoy basis. Consequently, the net profit grew by a robust 35% yoy to Rs4.8cr, meeting our expectations. Outlook and valuation: RBL is likely to clock double-digit top-line growth of 11% over the next two years. Revival in OEM volumes on account of better economic growth coupled with RBL’s focus on increasing the aftermarket revenues by enhancing the network and introducing new products would boost revenues. Also, RBL’s margins are likely to improve on account of increased localization and operating leverage. We expect RBL’s earnings to grow at a healthy 18% CAGR over FY2015-2017. We have retained our earnings estimates given the in line results. We maintain our positive stance on the stock with an Accumulate rating and a revised price target of Rs366 (based on 13x FY2017 earnings).
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