Randon S.A. Implementos e Participaes November 21 th , 2013 - PowerPoint PPT Presentation

White Team Daniel Garavaglia Frederico Toledo Juliano Bracalente Rodrigo Cruz Randon S.A. Implementos e Participações November 21 th , 2013

Recommendation Ticker RAPT Target Price: BRL 15,53 16 Ref. date 21-oct 15 Market Cap. 3.214 mn 14 Free Float 50.2% 13 Average daily trade 13.4 mn 12 volume 11 PE LTM 17.8 10 9 RAPT4 IBOV Upside 17.8 % 8 7 Oct 12 Jan 13 Apr 13 Aug 13 Oct 13 Buy Source: Economatica

Business Description

Business Description Net Revenue Breakdown (2Q2013): Main Characteristics: Financial 2% Services  Mixed holding company.  Sectors: 50% • Road implements 48% • Auto Parts • Services and others . Auto Road Parts Implements  Level 1 of corporate governance at BM&FBOVESPA. Source: Company data 2013 1976 1992 1949 1986 1995 2002 1996 Control of Suspensys Foundation IPO Fras-le Acquisition Jost Master Suspensys Repair (joint venture) (joint venture) (joint venture) Shop Business Ind. & Co. Financial Valuation Risk

Corporate Structure Controlling Group Vehicles & Auto Parts Road Implements Financial Services Business Ind. & Co. Financial Valuation Risk

Geographic Allocation and Exports Randon in the world: Randon is present in all • continents. However, its exports • represent less than 15% of net revenue. Domestic sales and exports: 14% Brazil Others 86% Source: Company data Source: Company data Business Ind. & Co. Financial Valuation Risk

Vertical Integration Road implements net revenue (3Q13): Suspensys, Jost and Master provide • 13% some products used in the manufacture of road implements. Consolidate net revenue Sales within The financial arms facilitate sales. • the holding 87% Source: Company data Auto parts net revenue (3Q13): Randon’s Suppliers breakdown (2012): 24.7% Master 25.3% Consolidate net revenue Jost Sales within Suspensys 74.7% the holding Others Source : Company data Source: Company data Business Ind. & Co. Financial Valuation Risk

Industry & Competitors

Road Implements Sector Performance Implementation of new ERP.  Randon underperformed Faillure at the adaptation to Proconve 7.  the sector in 2012. Weak crop season.  Decrease in truck production.  Anual production (in thousands) of road implements Brazilian truck production sector vs. Randon Implementos: (in thousands): 70 60 200 50 180 160 -45% 40 140 120 30 100 80 20 60 40 10 20 0 0 units 2008 2009 2010 2011 2012 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 Road Implements sector Randon Implementos Source: ANFIR and company data Business Ind. & Co. Financial Valuation Risk

Road Implements Sales Drivers 187.3 mn of tons in 2013 (15.5% higher than 2012) GDP 48% of sales to supply the primary sector Growth (29% only for transporting grains) Truck Crop Sales Seasson Variation of annual harvest vs Growth of Randon's consolidate net revenue: 60,00% 50,00% 40,00% 30,00%  Trucks and Road Implements are 20,00% complementary goods. 10,00% 0,00%  Correlation between heavy trucks 2008 2009 2010 2011 2012 -10,00% and road implements sales: 79% -20,00% -30,00% Annual Harvest Randon's Consolidate Net Revenue Source: CONAB and company data Business Ind. & Co. Financial Valuation Risk

Important loss of market share Players in the road implements sector:  289%.  Randon lost market share in the last decade mainly to smaller players.  The brand continues to maintain its leadership, though. Number of players: Market Share: 14,80% 26,20% 171 142 145 153 18,60% 12,20% 126 10,40% 9,70% 0,70% 11,20% 13,10% 68 68 66 10,40% 50 44 42,40% 30,40% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 RANDON FACCHINI LIBRELATO NOMA GUERRA OUTROS OTHERS Source: Company data Business Ind. & Co. Financial Valuation Risk

Important loss of market share Players in the road implements sector:  289%.  Randon lost market share in the last decade mainly to smaller players.  The brand continues to maintain its leadership, though. Number of players: Profitability: 171 142 145 153 20,00% 126 15,00% 10,00% 68 68 66 50 44 5,00% 0,00% 2010 2011 2012 Peers's margin RAPT mean EBITDA margin Source: Company data Business Ind. & Co. Financial Valuation Risk

Competitive Intensity in Road Implements Sector Moderate barries to entry. • Commodities as main inputs. • Costumers base is fragmented. • • Relatively large competitors. Threat of new There is no substitute product. • entrants 5 4 3 threat of Bargaining 2 substitutes power of 1 products suppliers 0 Competition Bargaining within the power of industry buyers Business Ind. & Co. Financial Valuation Risk

Auto Parts Sector Performance Autoparts sector revenue by destiny (2012): 7,4%  OEM is the main destiny. 8,6%  Randon’s division of auto parts 14,7% underperformed the sector. 69,3% Revenue of auto parts industry (BRL bn): Revenue of Randon's auto parts division (BRL mn): CAGR = 2.11% CAGR = 0.8% 2,5 100,00 2,0 80,00 1,5 60,00 40,00 1,0 20,00 0,5 0,00 0,0 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 Source: Sindipeças and company data Business Ind. & Co. Financial Valuation Risk

Leadership: the key word! 89% [OEM] 75% [OEM] 53% [OEM] Business Ind. & Co. Financial Valuation Risk

Competitive Intensity in Auto Parts Sector Low barriers to entry. • High number of players (~500). • Pressure of competitors. • Dependency on cast materials produces. • Threat of new Especific products. • entrants 5 4 3 threat of Bargaining Main Peers 2 substitutes power of 1 products suppliers 0 Competition Bargaining within the power of industry buyers Business Ind. & Co. Financial Valuation Risk

Government Role  BNDES – Attractive credit lines (Low interest rates): Procaminhoneiro • Credit PSI • FINAME •  State programs to fleet renewal (SP / RJ): RenovAr Goal: decrease of ~5 years in the average age. • Investments  Programa de Investimento em Logística 10,000 km of railways and 7,500 km of roads •  Programa de Aceleração do Crescimento (PAC) Legislation  Proconve 7 (EURO V)  CONTRAN Issues Business Ind. & Co. Financial Valuation Risk

Financial Analysis

An year to forget Net Revenues (BRL mn): 6,14 2010 2012 19% 5,69 -3% 13% 4,30 60% 3,71 3,50 3,36 11% 2,96 1% 2,23 2,20 1,82 1,61 1,56 RAPT4 WEG MYPK AUTM LEVE3 POMO 3 Drop in sales due to Proconve 7 and weak crop season. Business Ind. & Co. Financial Valuation Risk

Turnaround Net Revenue: Forecast Main Drivers 6,02 5,58 5,23 4,85 Strong crop season.  4,45 4,15 4,15 Subsidized credit.  3,71 3,5 Infrastructure investments.  Sales overseas.  2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E Source: Company data and team estimates Business Ind. & Co. Financial Valuation Risk

Margins Recovery Margins: Reasons 24,00%  Higher EBTIDA margin in auto parts. 19,00%  Decrease of operational expenses (new ERP). 14,00%  Maturation of Castertech’s assets.  Brantech’s leadership. 9,00%  Financial arms: increase of importance 4,00%  Acquisition of Suspensys. 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E gross margin EBIT margin EBITDA margin Source: Company data and team estimates Business Ind. & Co. Valuation Financial Risk

A strategic acquisition BRL 400 mn Reach new Decrease in (49%) markets minorities Higher margins Mitigate the risk of (auto parts) conflitcs Business Ind. & Co. Valuation Financial Risk

Profitability Forecast Forecast 25,00% 21,72% 20,81% 20,43% 19,90% 19,76% 19,26% 18,78% 18,74% 20,00% ROE 15,00% ROE: CAGR 2012-2018E 10,00% 5,44% 22.90 % 5,00% 0,00% 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 4,5 16,0% 4 14,0% Net Profit Profitability: 3,5 12,0% 3 10,0% 2,5 CAGR 2012-2018E 8,0% 2 6,0% 1,5 4,0% 1 45.84 % 2,0% 0,5 0 0,0% 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E Net Profit Net Margin EBITDA margin Business Ind. & Co. Financial Valuation Risk

Valuation

Revenue Model Sectors’ revenue (BRL mn): Quantities 3,5 R$ 3.500.000,00 Forecast 1. Trailers and Semi-trailers: Great volatility of YoY growth. 3,0 R$ 3.000.000,00 2. Auto Parts: Less cyclical 2,5 R$ 2.500.000,00 and a average YoY growth of 2.3% . 2,0 R$ 2.000.000,00 3. Financial Services: 5% of 1,5 R$ 1.500.000,00 Randon’s revenue in 2018 (management’s guidance). 1,0 R$ 1.000.000,00 0,5 R$ 500.000,00 Prices R$ - 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E The prices were adjusted by Trailers and Semi-trailers Autoparts Financial Services inflation. Source: Company data and team estimates Business Ind. & Co. Valuation Financial Risk