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Rane Brake Lining Ltd Research Report - 16th Dec 2015

Auto Ancillary | Published on Jun 16th 2015


Rane Brake Lining (RBL) is engaged in the manufacture of safety critical friction material products viz brake linings, disc pads and brake shoes. It is the leader in the automobile OEM (Passenger and commercial vehicle) segment with a 38% share, while it has an 18% share in the aftermarket segment. Recovery in OEM segment coupled with aftermarket focus to drive growth Passenger vehicle and the MHCV OEM segment, which contribute about 47% to RBL’s revenues, are in an uptrend and slated to grow in double digits over the next two years. Improved economic growth, further easing of interest rates, lower fuel prices and low base during the recent slowdown period would lead to an OEM upcycle in FY2016/17. RBL, with its market leadership (38% market share) and well established client base, would reap benefits from an anticipated upsurge in demand. Further, RBL’s strategy to enhance its distribution network in underpenetrated Northern and Eastern markets and to introduce new products, is likely to boost its aftermarket revenues. We expect RBL’s aftermarket segment (constituting 38% of sales) to grow at 14% CAGR over FY2015-2017. RBL is likely to outpace the industry and further augment its share in the aftermarket segment (current aftermarket share is 18%). Operating leverage, raw material localization and energy savings to augment margins RBL would reap benefits of operating leverage given the double digit top-line growth over the next two years. Also, it is working on enhancing the localization levels. Imported raw material currently forms about 48% of the material costs and the company aims to realize 100-200bp cost reduction with increased domestic procurement. Further, RBL is also working towards reducing its energy costs by implementing best practices across manufacturing plants and utilizing power from low cost sources. We expect RBL’s margins to improve by 70bp over FY2016/17. Outlook and valuation: RBL’s revenues are estimated to grow at 12% CAGR over the next two years. Upsurge in OEM volumes coupled with focus on the aftermarket segment would drive the top-line. Also, the company’s margins are expected to improve on account of operating leverage, enhanced local procurement and energy savings. Given the healthy top-line growth and margin improvement, RBL’s earnings are likely to grow at a CAGR of 17% over FY2015-2017. Its return ratios are also estimated to expand due to margin improvement and reduction in leverage. We initiate coverage on RBL with a Buy recommendation and target price of Rs336 (based on 12x FY2017 earnings).

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CMP 282
Target Price 336
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)1,002.20
MCAP NSE (Rs in Cr)999.98
P/E (x)31.89
EPS (Rs.)39.73
BV (Rs.)174.37
Div Yield (%)0.79
FV (Rs.)10.00
P/BV (x)7.27
EV/Sales (x)2.29
EV/EBITDA (x)19.75

Shareholding Pattern (%)

Public & Others23.0
Grand Total100.0

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