Analysis of Mazda Limited

Description
analysis of capital goods sector and investment positives for this sector. It gives the product lines of Mazda limited and financial analysis and valuation of mazda limited.

MAZDA LIMITED
VALUATION BY SOCIAL PROOF

FACTSHEET
•Mazda is a truly unique engineering company, situated in the Western Region of India. While India surges ahead in the field of manufacturing and engineering, Mazda partakes in this journey. •Annual sale of more than 500 systems all over the world. •Its modern R&D centre, its high standards for quality and its customer-focused approach, have made Mazda a leading company globally. •Mazda has supplied in the past its state-of-the-art Severe Service Turbine Bypass Valves and Control Valves to various segments of industries namely Nuclear, Atomic, Utility and Process. •Mazda has successfully exported its Severe Service Valves for 660 MW power plants and also caters to complete South-East Asian region. •Valve division was recently purchased by Circor International U.S.A. Circor, a 700 million dollar specialized company •Sale was aimed towards consolidating efforts towards focused grown in our Vacuum division.

Industry Analysis

Capital Goods Sector
? ? ? ?

The annual sales of the capital goods industry was about Rs.1100 billion during 200809. The market is almost 3 times at Rs 3000 billion - indicating that between 60 to 70 % of equipment across all categories is being imported The outlook for the sector remains positive due to the fundamentally strong Indian economy and the high correlation of the sector with the overall economic growth Labor in the Indian Capital Goods sector is highly cost competitive, even after discounting comparatively low labor productivity ? But low efficiency and inflexible labor policies erode away the advantage to a great deal

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The quality of raw materials of Indian origin is not up to the international standards in terms of dimensional tolerances and metallurgical properties, and this, in turn, affects the quality of the final product.
The technological competitiveness of the Indian Capital Goods sector is low Capital cost disadvantage - High Interest rate regime and high working capital requirements of indian capital goods manufacturers Indian capital goods sector faces a major threat from imports ? No quantitative restrictions on imports of capital goods and intermediates ? No restriction on import of cheap second-hand capital goods that have a minimum residual life of 5 year ? Quality of Indian capital goods do not match to that of the international standards

? ? ?

Investment Positives
? Strengthening Capital Spends - Capital

spending is forecasted to grow strongly to grow by 13% in FY10 and thereafter strengthening to 17% in FY11 and 18% in FY12. ? Higher GDP Growth -Government's focus on infrastructure spending coupled with an increase in investment demand by corporate India and improved consumption expenditure would push up the growth in Indian capital goods sector ? Reform oriented Central Government and Foreign Investments ? Emergence of private players

Industry segments
•Heavy engineering goods accounts for bulk of the capital goods production in India. •Most of the leading players are engaged in the production of heavy engineering goods and mainly produce high-value products using high-end technology. •Accounts for 68 % of the total industry sales •For Example – Electrical equipment, construction and mining equipment, Aerospace and defense etc

Heavy Engineering

Light Engineering

•The light engineering goods segment, on the other hand, uses medium to low-end technology. •This segment is characterized by the dominance of small and unorganized players which manufacture lowvalue added products. However, there are few medium and large scale firms which manufacture high-value added products. • This segment is also characterized by small capacities and high level of competition among the players. •Accounts for 9 % of the sales

Turnkey services

•Accounts for 23 % of the sales •For Example – Honeywell automation ltd, BGR Energy

PRODUCT LINES
Vacuum
Steam Jet Air Ejector (SJAE) System Turbine Vacuum System Air Jet Ejectors Jet Venturi Scrubbers

Evaporator
Falling / Rising Film Evaporators

Food

Forced Circulation Evaporators

Bcool

Thermo compressor

BCool – Food Division of Mazda
? BCool was started by Shanaya Mody, the daughter of

? ?

? ?

Sorab R Mody (M.D. Mazda Ltd.) BCool was started on a piece of un-used factory land. “What I have bought to the business is an ultra-low cost management style. Even at a revenue value of Rs. 3.25 crore, the whole business is managed solely by me…… When I first started, trusting people to uphold their word in business was the mistake I made. I learnt the hard way that the business realm is very ruthless and trust – whether it is for payments or supplies, or delivery – is to be frugally imparted!” – Shanaya Mody Shanaya Mody is post graduate in HR and was drawing a salary of Rs. 36 Lacs in 2010. Food division posted a loss of 8 lacs on a turnover of Rs. 3.2 crores.

FINANCIAL ANALYSIS

EPS Analysis
Year
2009-10 2008-09 2007-08 2006-07 2005-06

Asset turnover
1.89205 2.03499 2.10490 1.96694 2.01097

Return on sales
0.118053 0.117911 0.09311 0.088999 0.091472

Book value Leverage per share
1.010365 1.123497 1.179139 1.291606 1.373973 99.69054833 80.05773363 60.5658243 48.40099413 34.28697304

EPS
22.14 21.48 13.66 10.68 1.82

Reserves
38.19 29.83 21.53 16.35 10.64

The increase in EPS can be attributed to increase Book value per share over the years. ? Retained earnings have increased over the years – this has led to an increase in the book value per share ? But, the Return on capital is substantially high ( ~38 %) ? Hence, we can say that the growth in EPS is sustainable
?

A PRUDENT BANKER…
Total Liquid Asset + Unutilized debt capacity Total Cash + Unutilized Debt Capacity Price According to Prudent Banker Price/Book Value

57.309091

37.179091

84.80

1.1505268

1.432767

1.893789

2.369781

15.55631

Price/Earnings

5.1784101

5.337523

8.393119

10.73502

62.99451

DUPONT ANALYSIS
Ratio
Tax Impact PAT/PBT Interest Impact PBT/EBIT Operating Margins EBIT/Revenue Profit Margin PAT/Revenue Asset Revenue/Net Turnover Assets Leverage Assets/Equity ROE

200910
64.17%

200809
63.69%

200708
62.67%

200607
65.08%

200506
64.96%

97.07%
18.95% 11.81% 1.99 1.010365 22.57%

94.25%
19.64% 11.79% 2.28 1.123497 26.96%

94.07%
15.79% 9.31% 2.22 1.179139 23.11%

90.75%
15.07% 8.90% 2.21 1.291606016 22.61%

88.75%
15.87% 9.15% 2.09 1.373973 25.27%

? Profit Margins have been improving over the years ? Leverage has been decreasing ? High Returns

Our Analysis
? Mazda Limited has a very good Engineering ? ? ? ?

?

business. The company has a good product line It is almost debt free It sold its low margins Valves business – it got very good valuation The Corporate governance is under question ? – with the start of food business. But they have realized their mistake – Mazda has publicly stated that they may not invest more in the food business Mazda Limited is a value buy at Rs 114

Thank You



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