Tube Investments of India: Staying Focused…

Post restructuring, Tube Investments of India (TI) is a pure-play manufacturing company from the Murugappa Group, one of the oldest business houses of India.

The company’s business interest span across products like steel strips, tubes and tubular components, bicycles and fitness products, chains for automotive and industrial applications, metal formed parts for automotive, railways, industrial gears and automotive dies.

TI has 17 manufacturing units located close to the major manufacturing hubs with Just In Time (JIT) supply capabilities, 5 depots and 35 warehouses located across the country.

The company operates under 3 business divisions namely
1. Engineering
2. Bicycles
3. Metal Formed Products

Engineering Division:

ti-tubes

TI manufactures high precision, safety critical CDW and ERW tubes, tubular components, large diameter tubes for hydraulic cylinders and off-road applications, and special grade Cold Rolled Steel Strips (CRSS).

Products:
– Cold Drawn Welded (CDW) Precision tubes
– ERW tubes
– Tubular components
– Cold Rolled Steel Strips (CRSS)

Comp. Advantage:
– Preferred Indian supplier and market leader in high-precision CDW tubes
– Strategic supplier for application-specific special grade CRSS
– Only manufacturer with 4 plants proximately located to customers in key geographies

TI is setting up a new plant to make precision steel tubes at Rajpura with a capacity of 11,000 tons per annum. The estimated capex is ₹ 77 cr and is likely to be commissioned by early FY19.

TI derives 45% of its revenues from this division. TI manufactured 245,000 tons of large diameter tubes in FY17. The long term average margin for the engineering division is 6,000 / ton.

Cycles Division:

ti-store

TI Cycles manufactures and markets a wide range of bicycle brands, fitness equipment and accessories. The bicycle range include standard commute bicycles to premium bicycles for kids, the health conscious, the urban commute and performance cycling. TI’s brands command a leadership position in India.

TI Cycles is the 2nd largest bicycle manufacturer in India with a marke share of 36%. TI has large dealer network across India with 10,000 touch points, 3 strategically located manufacturing plants and 13 warehouses.

TI’s brands include BSA and Hercules in the standard segment and Roadeo and Montra in the premium segment.

ti-brands

TI Cycles launched renowned Belgian-based Ridley cycles in the price range of ₹ 25,000 to over ₹ 80,000. TI Cycles has licensing agreement with Ridley and Schwinn. TI Cycles distributes brands like Cannondale, GT and Mongoose. These premium cycles are available at ‘Track & Trail Sports’ retail outlets.

ti-track

Ciclo Cafe opened at Gurugram and Hyderabad. TI’s larget state-of-the-art cycle manufacturing plant at Rajpura, Punjab commenced production.

ti-cafe

TI derives 30% of its revenues from this division. TI sold 4 mn bicycles in FY17.

Metal Formed Products Division:

ti-metal

TI manufactures auto and industrial chains, fine blanking components, motor castings and metal formed products for automotive, industrial and railway segments. TI has 10 manufacturing units 14 warehouses located in proximity to automotive and industrial hubs of India.

Comp. Advantage:
– Preferred supplier for manufacturing safety-critical components for automotive industry
– Market leader in automotive and industrial chains
– Preferred supplier for roll-formed doorframes
– TI’s flagship Diamond, Razor & Rombo brands are tuusted for their quality and consistency

TI derives 25% of its revenues from this division.

Management:
– Mr. Ramkumar, MD, brings in 37 years of rich experience that includes 25 years serving the company in various capacities
– Mr. Ramkumar holds an MBA from IIM, Ahmedabad.
– Mr. Vellayan Subbiah, MD, has over 23 years of experience in consulting, technology and financial services
– Mr. Subbiah holds an MBA from the Univerysity of Michigan and an engineer from IIT

Investors:
– Promoters hold 49.9% of the company
– HDFC MF holds 8.1% of the company
– L&T MF holds 1.9% of the company
– Reliance MF holds 1.4% of the company
– Gagandeep Capital holds 2.2% of the company
– Shamyak Investment holds 1.3% of the company

Shanti Gears is a 70% subsidiary of TI.

Valuation:
22-Jun-2018:
At the CMP of ₹ 223, the rate of return is 9.0% based on pre-tax earnings to market cap. TI is available at .9x times of sales to market cap.

25 Jun 18
#ENAM Securities bought 11.7 lakh shares of Tube Investments for ₹26 crore, or at ₹ 222 per share.
Promoter Group Ambadi Investments sold 0.8% at ₹ 222 each in order to meet cash flow requirements.

Source: Company
Idea2Analyse: Mr. Sivanandam Balakrishnan

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