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

▶
randon s a implementos e participa es
SMART_READER_LITE
LIVE PREVIEW

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

Aug 30, 2023 100 likes •521 views

White Team Daniel Garavaglia Frederico Toledo Juliano Bracalente Rodrigo Cruz Randon S.A. Implementos e Participaes November 21 th , 2013 Recommendation Ticker RAPT Target Price: BRL 15,53 16 Ref. date 21-oct 15 Market Cap. 3.214 mn

slide-1
SLIDE 1

November 21th, 2013

Randon S.A. Implementos e Participações

White Team Daniel Garavaglia Frederico Toledo Juliano Bracalente Rodrigo Cruz

slide-2
SLIDE 2

Recommendation

7 8 9 10 11 12 13 14 15 16

Oct 12 Jan 13 Apr 13 Aug 13 Oct 13 RAPT4 IBOV

Target Price: BRL 15,53 Ticker RAPT

  • Ref. date

21-oct Market Cap. 3.214 mn Free Float 50.2% Average daily trade volume 13.4 mn PELTM 17.8

Upside 17.8 %

Buy

Source: Economatica

slide-3
SLIDE 3

Business Description

slide-4
SLIDE 4

Business Description

Main Characteristics:  Mixed holding company.  Sectors:

  • Road implements
  • Auto Parts
  • Services and others.

 Level 1 of corporate governance at BM&FBOVESPA.

1949 1976 1986 1992 1995 1996 2002

Repair Shop Foundation IPO

Master (joint venture) Jost (joint venture) Control of Fras-le Suspensys (joint venture) Suspensys Acquisition

2013

50% 48% 2%

Financial Services Auto Parts Road Implements Net Revenue Breakdown (2Q2013):

Source: Company data

Business

  • Ind. & Co.

Valuation Risk Financial

slide-5
SLIDE 5

Corporate Structure

Vehicles & Road Implements Auto Parts Financial Services Controlling Group

Business

Valuation Risk Financial

  • Ind. & Co.
slide-6
SLIDE 6

Geographic Allocation and Exports

  • Randon is present in all

continents.

  • However,

its exports represent less than 15%

  • f net revenue.

86% 14%

Brazil Others

Source: Company data

Randon in the world: Domestic sales and exports:

Source: Company data

Business

Valuation Risk Financial

  • Ind. & Co.
slide-7
SLIDE 7

Vertical Integration

  • Suspensys, Jost and Master provide

some products used in the manufacture of road implements.

  • The financial arms facilitate sales.

Master Jost Suspensys Others

24.7%

Source: Company data

74.7% 25.3%

Consolidate net revenue Sales within the holding

87% 13%

Consolidate net revenue Sales within the holding

Auto parts net revenue (3Q13):

Source: Company data Source: Company data

Road implements net revenue (3Q13):

Randon’s Suppliers breakdown (2012):

Business

Valuation Risk Financial

  • Ind. & Co.
slide-8
SLIDE 8

Industry & Competitors

slide-9
SLIDE 9

Road Implements Sector Performance

20 40 60 80 100 120 140 160 180 200

2008 2009 2010 2011 2012

units Road Implements sector Randon Implementos

Randon underperformed the sector in 2012.

10 20 30 40 50 60 70 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13

Brazilian truck production (in thousands):

  • 45%

 Implementation of new ERP.  Faillure at the adaptation to Proconve 7.  Weak crop season.  Decrease in truck production.

Source: ANFIR and company data

Anual production (in thousands) of road implements sector vs. Randon Implementos:

Business

Valuation Risk Financial

  • Ind. & Co.
slide-10
SLIDE 10

Road Implements Sales Drivers

187.3 mn of tons in 2013 (15.5% higher than 2012) 48% of sales to supply the primary sector (29% only for transporting grains)  Trucks and Road Implements are complementary goods.  Correlation between heavy trucks and road implements sales: 79% GDP Growth Truck Sales Crop Seasson

  • 30,00%
  • 20,00%
  • 10,00%

0,00% 10,00% 20,00% 30,00% 40,00% 50,00% 60,00% 2008 2009 2010 2011 2012

Annual Harvest Randon's Consolidate Net Revenue

Variation of annual harvest vs Growth of Randon's consolidate net revenue:

Source: CONAB and company data

Business

Valuation Risk Financial

  • Ind. & Co.
slide-11
SLIDE 11

Important loss of market share

44 50 68 66 68 126 142 145 153 171 42,40% 30,40% 13,10% 10,40% 0,70% 11,20% 10,40% 9,70%

18,60% 12,20% 14,80% 26,20%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 RANDON FACCHINI LIBRELATO NOMA GUERRA OUTROS

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:

Source: Company data OTHERS

Business

Valuation Risk Financial

  • Ind. & Co.
slide-12
SLIDE 12

Important loss of market share

44 50 68 66 68 126 142 145 153 171

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:

Source: Company data

Business

Valuation Risk Financial

  • Ind. & Co.

0,00% 5,00% 10,00% 15,00% 20,00% 2010 2011 2012 Peers's margin RAPT mean EBITDA margin

Profitability:

slide-13
SLIDE 13

Competitive Intensity in Road Implements Sector

1 2 3 4 5

Threat of new entrants Bargaining power of suppliers Bargaining power of buyers Competition within the industry threat of substitutes products

  • Moderate barries to entry.
  • Commodities as main inputs.
  • Costumers base is fragmented.
  • Relatively large competitors.
  • There is no substitute product.

Business

Valuation Risk Financial

  • Ind. & Co.
slide-14
SLIDE 14

Auto Parts Sector Performance

0,00 20,00 40,00 60,00 80,00 100,00

2008 2009 2010 2011 2012 CAGR = 2.11%

0,0 0,5 1,0 1,5 2,0 2,5 2008 2009 2010 2011 2012

CAGR = 0.8%

69,3% 14,7% 8,6% 7,4%

Autoparts sector revenue by destiny (2012):

Source: Sindipeças and company data

Revenue of Randon's auto parts division (BRL mn):

 OEM is the main destiny.  Randon’s division of auto parts underperformed the sector.

Revenue of auto parts industry (BRL bn):

Business

Valuation Risk Financial

  • Ind. & Co.
slide-15
SLIDE 15

Leadership: the key word!

89% 75% 53% [OEM] [OEM] [OEM]

Business

Valuation Risk Financial

  • Ind. & Co.
slide-16
SLIDE 16

Competitive Intensity in Auto Parts Sector

  • Low barriers to entry.
  • High number of players (~500).
  • Pressure of competitors.
  • Dependency on cast materials produces.
  • Especific products.

1 2 3 4 5

Threat of new entrants Bargaining power of suppliers Bargaining power of buyers Competition within the industry threat of substitutes products Main Peers

Business

Valuation Risk Financial

  • Ind. & Co.
slide-17
SLIDE 17

Government Role

Credit

Investments

 Proconve 7 (EURO V)

 CONTRAN Issues  BNDES – Attractive credit lines (Low interest rates):

  • Procaminhoneiro
  • PSI
  • FINAME

 State programs to fleet renewal (SP / RJ): RenovAr

  • Goal: decrease of ~5 years in the average age.

 Programa de Investimento em Logística

  • 10,000 km of railways and 7,500 km of roads

 Programa de Aceleração do Crescimento (PAC)

Legislation

Business

Valuation Risk Financial

  • Ind. & Co.
slide-18
SLIDE 18

Financial Analysis

slide-19
SLIDE 19

An year to forget

Drop in sales due to Proconve 7 and weak crop season.

3,71 4,30 2,20 1,56 1,82 2,96 3,50 6,14 5,69 1,61 2,23 3,36 RAPT4 WEG MYPK AUTM LEVE3 POMO 3

2010 2012

  • 3%

19% 60% 1% 11% 13%

Net Revenues (BRL mn):

Business

Valuation Risk Financial

  • Ind. & Co.
slide-20
SLIDE 20

Turnaround

 Strong crop season.  Subsidized credit.  Infrastructure investments.  Sales overseas.

3,71 4,15 3,5 4,15 4,45 4,85 5,23 5,58 6,02 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

Net Revenue:

Source: Company data and team estimates

Forecast

Main Drivers

Business

Valuation Risk Financial

  • Ind. & Co.
slide-21
SLIDE 21

Margins Recovery

Reasons  Higher EBTIDA margin in auto parts.  Decrease of operational expenses (new ERP).  Maturation of Castertech’s assets.  Brantech’s leadership.  Financial arms: increase

  • f

importance  Acquisition of Suspensys.

4,00% 9,00% 14,00% 19,00% 24,00% 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E gross margin EBIT margin EBITDA margin

Margins:

Source: Company data and team estimates

Business

Valuation Risk Financial

  • Ind. & Co.
slide-22
SLIDE 22

A strategic acquisition

BRL 400 mn (49%) Reach new markets Higher margins (auto parts) Decrease in minorities Mitigate the risk of conflitcs

Business

Valuation Risk Financial

  • Ind. & Co.
slide-23
SLIDE 23

Profitability Forecast

0,0% 2,0% 4,0% 6,0% 8,0% 10,0% 12,0% 14,0% 16,0% 0,5 1 1,5 2 2,5 3 3,5 4 4,5 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

Net Profit Net Margin EBITDA margin

ROE:

Profitability:

21,72% 20,43% 5,44% 20,81% 19,90% 19,26% 19,76% 18,78% 18,74% 0,00% 5,00% 10,00% 15,00% 20,00% 25,00% 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

ROE CAGR2012-2018E 22.90 % Net Profit CAGR2012-2018E 45.84 %

Forecast

Business

Valuation Risk Financial

  • Ind. & Co.
slide-24
SLIDE 24

Valuation

slide-25
SLIDE 25

Revenue Model

R$ - R$ 500.000,00 R$ 1.000.000,00 R$ 1.500.000,00 R$ 2.000.000,00 R$ 2.500.000,00 R$ 3.000.000,00 R$ 3.500.000,00

2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

Trailers and Semi-trailers Autoparts Financial Services 3,5 3,0 2,5 2,0 1,5 1,0 0,5

Sectors’ revenue (BRL mn):

Source: Company data and team estimates

Quantities

  • 1. Trailers and Semi-trailers:

Great volatility of YoY growth.

  • 2. Auto Parts: Less cyclical

and a average YoY growth of 2.3% .

  • 3. Financial Services: 5% of

Randon’s revenue in 2018 (management’s guidance).

Prices

The prices were adjusted by inflation. Forecast

Business Valuation

Risk Financial

  • Ind. & Co.
slide-26
SLIDE 26

CAPEX

 Suspensys Acquisition  1.3x Net Debt/EBTIDA (company’s guidance)  CAPEX ~1.3x of Depreciation  Decreasing of organic investments in the following years.

0,5 1 1,5 2 2,5 3 0,5 1 1,5 2010 2011 2012 2013E 2014E 2015E 2016E 2017E 2018E Debt CAPEX Net Debt/EBITDA

CAPEX and Debt (BRL mn):

Assumptions

Source: company data and team estimates

Business Valuation

Risk Financial

  • Ind. & Co.

Forecast

slide-27
SLIDE 27

WACC Breakdown

2013 2014 2015 2016 2017 2018 BR Inflation 5,60% 5,30% 5,00% 4,70% 4,50% 4,50% US Inflation 1,40% 1,50% 1,70% 1,80% 2,00% 2,00%

Business Valuation

Risk Financial

  • Ind. & Co.
slide-28
SLIDE 28

DCF

2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

  • 102
  • 98

95 225 240 274 312 328

Perpetuity growth (nominal) 5%

Free Cash Flow to Firm:

2011 2012 2013E 2014E 2015E 2016E 2017E 2018E EBIT 459.779,36 167.919,05 459.023,74 503.872,99 552.955,29 607.287,96 660.786,65 716.804,24 (-) Taxes (156.324,98) (57.092,48) (156.068,07) (171.316,82) (188.004,80) (206.477,91) (224.667,46) (243.713,44) NOPAT 303.454,38 110.826,57 302.955,67 332.556,17 364.950,49 400.810,05 436.119,19 473.090,80 (+)Depreciation/Amortization 87.463,00 112.260,00 131.256,00 143.483,00 156.185,00 167.542,00 180.255,00 189.985,00 (+/-) Working Capital Need (245.620,00) (79.626,00) 208.193,60 (63.853,50) (78.047,83) (75.843,17) (69.350,93) (87.199,33) Capital Expenditure (248.273,00) (224.520,00) (547.280,00) (186.527,90) (203.040,50) (217.804,60) (234.331,50) (246.980,50) FCF (102.975,62) (81.059,43) 95.125,27 225.657,77 240.047,16 274.704,28 312.691,76 328.895,97

Business Valuation

Risk Financial

  • Ind. & Co.
slide-29
SLIDE 29

Sensitivity Analysis

4% 4,50% 5% 5,50% 6% 8,90% 13,65 15,64 18,13 21,36 25,7 9,20% 12,37 14,1 16,23 18,94 22,49 9,50% 11,24 12,75 15.53 16,89 19,84 9,80% 10,23 11,55 13,16 15,13 17,62 10,10% 9,32 10,5 11,9 13,61 15,73 Source: Team's estimates Long-term growth rate WACC -residual

0,00 5,00 10,00 15,00 20,00 25,00 5 yrs DCF +Terminal Value Net Debt Minorities Target Price

BRL 15.53

Buy

Target Price (BRL/Share): Sensitivity Analysis: Upside 17.8 %

Business Valuation

Risk Financial

  • Ind. & Co.
slide-30
SLIDE 30

Price target supported by P/E

Peers median P/E Historical average

BRL 16.28

Peers average P/E

BRL 15.4 BRL 16.62 EPS 2014E: BRL 1.10 14x 15.1x 14.8x Business

Valuation Risk Financial

  • Ind. & Co.
slide-31
SLIDE 31

Risk Analysis

slide-32
SLIDE 32

Macroeconomic Risk Market Risk Operational Risk Political Risk Competitive risk

Increase of Chinese auto parts importation Increase of commodities price and labor cost End of government stimulus to truck's demand Rise of exchange rate's volatility (USD/BRL) New trucks and autoparts legislations Changes in interest rate Drop in GDP growth Growth of players in road implements market Decrease of domestic harvest

Investments Risks

Major Moderate

Likelihood Consequences

Likely Possible Unlikely Minor

Business

Valuation Risk Financial

  • Ind. & Co.
slide-33
SLIDE 33
  • 40,00%
  • 20,00%

0,00% 20,00% 40,00% 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13

Trailers and Semi-trailers sales growth (%) GDP growth (YoY)

Pearson correlation = 80% High correlation between trailers/semi-trailers sales and GDP  Road cargo transportation is the key-factor for brazilian’s logistic sector Brazil: most heavy vehicles are used in grain transportation  Randon’s trailers/semi-trailers and autoparts are mainly used in heavy vehicles.

Business

Valuation Risk Financial

  • Ind. & Co.

Impact of GDP Variation

slide-34
SLIDE 34
  • Reducing the impact of possible increase in metal price

 Investments in cast materials sector (Castertech: Joint venture with ArvinMeritor)

  • Strength of labour unions

 Possible increase of labour costs

Business

Valuation Risk Financial

  • Ind. & Co.

Labor force 11% Depreciation 2% Others 8% Metals 52% Chemicals 39% Others 9% Raw Materials 79%

COGS Breakdown:

Source: Company data

COGS Breakdown

slide-35
SLIDE 35

 Average interest rate of BNDES funding programms are at the historically lowest level.  Most of the demand of trucks and road implements are subsidiezed by BNDES.  High depedency: any change in these programms will jeopardize Randon’s sales.

Business

Valuation Risk Financial

  • Ind. & Co.

0,00% 2,00% 4,00% 6,00% 8,00% 10,00% 12,00% Average interest rate (companies) at BNDES funding programms % p.y. % a.a. Average interest rate (autonomous) at BNDES funding programms % p.y. % a.a. % of default (companies) at BNDES funding programms % of default (autonomous) at BNDES funding programms

BNDES funding programm Main users Interest rate (% p.y.) PSI Companies 4% FINAME Autonomous & Companies 12.2% Procaminhoneiro Autonomous 12.3%

Interest Rates and Default

Interest rates and default in BNDES Programs:

Source: BNDES

slide-36
SLIDE 36

Monte Carlo Simulation

Risk Variable Decrease in Revenues GDP Growth (%) Decrease in margins Brazilian inflation rate - IPCA (%) Decrease in revenues Interest rate (%) Decrease in revenues Crop season (tons.) Mean BRL 22,73

  • St. Dev.

BRL 8,55 Minimum BRL 0,10 Maximum BRL 52,08 Target Price

100 200 300 400 500 600 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 Freqquency Target Price (BRL)

BUY: 82% HOLD: 8% SELL: 10%

Business

Valuation Risk Financial

  • Ind. & Co.
slide-37
SLIDE 37

Conclusion

slide-38
SLIDE 38

Reasons to BUY

Vertical Integration

Solid Brands and Leadership

Great Demand Stimuli

Conservative Debt Structure

Acces to Low Cost Debt

slide-39
SLIDE 39

Five approaches, one target

3 8 13 18 23 28 33 38 Monte Carlo Simulation (95% probability) DCF - 5% residual growth Bullish Case EBITDA margin 14.5% - 16% P/E 10x - 17x EV/EBTIDA 6x -10x BRL/share

BRL 15.53

Upside 17.8%

BUY

slide-40
SLIDE 40

Thank you for your attention!