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
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