Tube Investments: Significant. Eventful.

12 Jul 2023 , 10:25 AM

Recommendation: Add; Target price: Rs 3068

TIINDIA’s FY23 annual report (AR) highlights the strength of the core business performance where demand tailwinds, combined with “lean” focus, is driving higher ROCE and FCF. These are then being deployed to expand the addressable market through forays into EVs as an OEM and into electronics, medical devices and CDMO to mine the re-shoring/China plus one opportunities. AR also highlights focus on building people capital, honing efficiencies and IIoT to be ready for the expanding frontiers.

Strong core business performance: 

TII’s core business grew stronger in FY23 with higher ROCE across segments (baring cycles) and healthy FCF generation. This was supported by demand revival in domestic auto and early gains from lean initiatives. Trajectory should sustain as Exports and Railways, which lagged in FY23, see revival aided by market demand and company initiatives. CG Power too saw healthy FCF driving a sharp deleveraging, which incrementally will be used to drive capacity expansion, higher share of exports (5% to 20%) and R&D for new segments.

Replicating “lean” and building capabilities…: 

AR23 highlights strong focus on lean initiatives across TII’s manufacturing facilities and also across CG Power and Shanthi Gears. This would drive better productivity and efficiency, higher employee safety and morale and improve competitiveness. AR23 also highlights increasing focus on building people capital through better engagement, training and aligned incentives to drive capabilities as TII ventures in new segments.

With a focus on new frontiers: 

FY23 was eventful, with the launch of EV-EW, acquisition of IPL Tech (55T EV HCV) and commencement of capex of many plants for trucks and tractors and tying up of Rs19.5bn of funding at TICMPL. TII also entered new segments of Electronics, Medical Devices and CDMO to mine the opportunities from re-shoring and China plus one. Intent is to leverage existing capabilities and scale up across these forays in FY24-25.