No. of Shares Shares as % of Total No. of Shares Urmil Gopani 136, % Total 136, %

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1 Z.F.STEERING GEAR (INDIA) LTD - (ZFSTEER) 19 th August, 2011 Stock Metrics BSE Group B BSE Code Market Capitalization Rs.274 cr. Face Value Rs Wk High (BSE) Rs. 519 ( 16 Sept 11 ) 52 Wk Low (BSE) Rs ( 21 Mar 11 ) CMP as on 19 th August 2011 Rs.303 Accumulation Level Rs Target Price & Potential Upside Rs. 395 ie 30% Shareholding pattern as of June 2011 Others, 26.65% DII, 0.09% Promoters, 73.26% "Public" and holding more than 1% of the Total No. of Shares Name of the Shareholder No. of Shares Shares as % of Total No. of Shares Urmil Gopani 136, % Total 136, %

2 About ZF Steering ZF Steering Gear (India) Ltd (ZFINDIA) a Pioneer in Manufacturing and Supply of Ball and Nut Integral Hydraulic Power & Worm and Roller Mechanical Steering System in India and having joint venture with M/s. ZF Lenksysteme GmbH. The plant is located at village Vadu Budruk, Taluka- Shirur, 28 Km away from Pune on Pune - Ahmednagar Highway, in the western part of India. Pune is a major automotive hub with OEM like Daimler India, Force Motors, General Motors, Mercedes Benz, Mahindra Navistar, TATA Motors, Volks Wagen, etc. In FY , the Company has expanded its installed capacity of Power Steering Gears to 3 lakh units per annum and Mechanical Steering Gears to 2 lakh units per annum at its existing factory at Vadu Budruk. As continuous initiative for clean environment, company has been investing in Green Energy projects. Earlier, the company has invested in Wind-Power projects. The company had applied for 5 MW Solar Project under the Gujarat Government's Solar Power Policy, as Solar radiation over Gujarat has maximum intensity in India and the average rainfall is scanty in most parts of the state, hence best suited for solar power generation. Outlook for the company The automotive paradigm is shifting from Europe to Asia. Growing markets like India are increasingly becoming important and becoming primary markets for most European countries. SIAM (Society of Indian Automobile Manufacturers) have forecasted 18-21% growth for Light Commercial Vehicles, 16-18% growth for Passenger Cars, 12-14% growth for Utility Vehicles and 10-12% for Heavy Commercial Vehicles in over the previous year. This Project will enable the company to generate clean energy, which will be a small contribution from the company to the Government's clean energy drive and it will also help the company in reducing Income Tax outgo in the current year and the next year.

3 ZF Steering Product Range Ball and Nut Integral Hydraulic Power Steering Gears for Heavy Commercial vehicles. Integral hydraulic Power Steering Gears for Medium and Light Commercial Vehicles. Power steering gears for SUV and off road vehicles. Vane pumps - used in power steering, automatic transmission pumps Oil reservoirs oil tank Steering columns. Drop arms. Intermediate shafts. Universal joints. Bevel gear boxes. Worm and roller mechanical Steering systems for Tractor and Light Commercial Vehicle and all accessories for the same. Power Rack and Pinion steering system for Passenger Car. Mechanical Rack and Pinion Steering System for One Toner Passenger and Goods Carrier. Auto Ancillary Sector outlook The growth of middle class with increasing purchasing power along with strong growth of economy over a past few years have attracted the major auto manufactures in Indian market. The market linked exchange rate and availability of trained manpower at competitive cost have further added to the attraction of Indian domestic market. The increasing competition in auto companies has not only resulted in multiple choices for the Indian consumer at competitive costs, it has also ensured an improvement in productivity by almost 20% a year in auto industry, which is one of the highest in Indian manufacturing sector.

4 Growth in the automobiles segment is likely to moderate in , due to rise in car ownership costs and high interest rates due to recent increase in repo & reverse rates by RBI on 26 th July Consequently, the growth in production of auto components will moderate to percent in Automobile OEM segment is expected to grow by percent and automobile exports are likely to grow by percent during this period. A recent ACMA report puts the turnover of the auto component industry at about US$ 26 billion in , up 18 per cent from US$ 22 billion in India is among the most competitive manufacturers of auto components in the world. Auto component industry in India has potential to grow at a CAGR of 13% to reach US$40 billion by As per CARE research report the domestic sales are expected to grow at Compounded Annual Growth Rate (CAGR) of 20.6 per cent from Rs.106,000 crore in to Rs.270,000 crore in , exports are expected to witness CAGR of 22.2 per cent from Rs. 22,000 crore to Rs. 60,000 crore during the same period. The volume growth is expected around per cent, while realizations would augment at a CAGR of 7-8 per cent during the same period. The off-take for drive transmission and steering components is likely to grow at a healthy CAGR of 18 20% from the current level of Rs.18,000 crore. Competition amongst the original equipment manufacturers (OEMs) is intensifying on one hand and input costs are likely to inch upwards on the other. In the battle-field for garnering market share, the OEMs would be forced to sacrifice some part of their profitability. In this light, CARE Research foresees the EBITDA margin of the OEMs to come down in the next months. With strong bargaining power of the consolidated automobile industry, pressure is expected to trickle down to the fragmented component manufacturing industry. This is the primary factor that would drive down the margin for the component manufacturers in addition to the rising input costs.

5 India's Per Capita Income in (Rs) FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 E India's automobile production trend (units) 25,000,000 20,000,000 15,000,000 10,000,000 11,087,997 10,853,930 11,172,275 14,057,064 17,916,035 22,335,012 5,000,000 0 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 E Source: SIAM

6 Valuable customers Power Steering Gear: Tata Motors, Ashok Leyland, Force Motors,Diamler,Eicher Motors, Swaraj Mazda, Volvo India, Man Force Trucks,M&M Mechanical Steering Gear: Force Motors, TAFE (Eicher Motors), Escorts, International Tractors, M&M, New Holland Tractors, Punjab Tractors, SAME Tractors, ACE Domestic Market Share of Auto Sector for Segment wise Market Share in Passenger Vehicles, % Two Wheelers, % Commercial Vehicles, 4.36% Three Wheelers, 3.39 %

7 Operational performance Increasing Capacity Utilization FY 09 FY 10 FY 11 Capacity Installed Hydraulic Power Steering 270, , ,000 Mechanical Steering 140, , ,000 Production Hydraulic Power Steering 105, , ,038 Mechanical Steering 79, , ,870 Capacity Utilization (%) Hydraulic Power Steering 39.10% 51.20% 67.01% Mechanical Steering 56.90% 77.10% 77.94% Investment value per share Market Value of Investments (as of 16 th August 2011) Rs crores Computation of cash per share Particulars Rs in crores Market Value of Investments Cash lying in Balance Sheet 2.16 Less: Loan Liability Liquid cash available Cash value per share With the cash value per share being as high as Rs per share, this provides significant cushion to the shareholders thereby capping the downside to a large extent.

8 5 Years Highlights Turnover (Rs. cr) Netprofit (Rs. cr) CAGR 6.93% CAGR 10.33% FY 07 FY 08 FY 09 FY 10 FY 11 FY 07 FY 08 FY 09 FY 10 FY 11 Networth (Rs. cr) CAGR 16.55% FY 07 FY 08 FY 09 FY 10 FY 11

9 12 CAGR 6.28% Dividend payout (Rs.cr) FY 07 FY 08 FY 09 FY 10 FY 11 Fixed Assets Gross Block (Rs. cr) FY 07 FY 08 FY 09 FY 10 FY 11

10 Operating Cash flow (Rs. cr) CAGR 25.61% FY 07 FY 08 FY 09 FY 10 FY 11 Q1FY12 Performance Particulars Q1 FY12 Q1 FY 11 Q4 FY11 YoY (%) QoQ (%) Net Sales % -5.04% Other Operating Income % % Total Income % -5.46% Expenditure a) (Inc)/dec in stock-in-trade % % b) RMC % -3.18% c) Purchase of traded goods % % d) Employees cost % 23.61% e) Other expenditure % % Total % -7.41% EBIDTA % 1.86% Depreciation % % EBIT % 6.46% Interest % % Other Income % 47.68% PBT % 11.14% Tax % 13.01% PAT % 10.34% Excess Income Tax/depreciation of earlier years written-back Adjusted PAT % % Equity (FV-Rs.10) EPS (Rs.) % %

11 Q1FY 11 results highlights: The net revenue increased by 26% YoY to Rs crores The EBIDTA and PAT increased by 24.78% and 2.12% to Rs crores and Rs crores respectively. The overall Commercial Vehicles segment, in the country, has registered a growth of 14 percent during April-June 2011 over the same period last year. While Medium & Heavy Commercial Vehicles (M&HCVs) registered marginal growth of 5 percent, Light Commercial Vehicles grew at 22 percent. However, due to higher commodity prices, margins are under pressure. ZF Steering Sales figures Q1FY12 Particulars Q1FY12 Q1FY11 Q4FY11 Power Steering Gears CV/MU / BUS 48,919 (+26 %) 38,898 51,981 Rack & Pinion Steering Gear Power 4,016 (-9 %) 4,405 5,800 Mechanical Steering Gear 44,267 (+29 %) 34,204 42,779 Initiative in Green Energy During FY12 the Company will complete its 5 MW Solar Power Project at Gujarat at total cost of Rs. 70 to 72 crore. Its first full year of commercial operation can add Rs. 11 to 13 crore to the Income plus carbon-credit benefits etc., which once commissioned, will not have much recurring costs. The Company already has 6.7 MW Wind Mills for its captive power consumption.

12 Financials Income Statement FY 10 FY 11 FY 12 E Net Sales Other Operating Income Total Income a) (Inc)/dec in stock-in-trade (3.00) b) RMC c) Purchase of traded goods d) Employees cost e) Other expenditure Total EBIDTA Depreciation EBIT Interest Other Income PBT Tax PAT Excess Income Tax/depreciation of earlier years written-back PAT Equity Share Capital (FV-Rs.10) EPS (Rs.)

13 Balance sheet Particulars FY 10 FY 11 FY 12 E - Share Capital Reserves & Surplus Total Loan Funds Deferred Tax Liabilities (net) Total Fixed Assets(Including Capital Advance/Capital WIP) Investments Inventories Sundry Debtors Cash and Bank Balances Loans and Advances Less: Current Liabilities & Provisions - Current Liabilities Provisions Total

14 Ratios FY 10 FY 11 FY 12 E ROCE% 22.45% 25.93% 26.40% ROE % 21.14% 24.66% 23.29% Interest Coverage Ratio (x) Debt/Equity (x) Operating Margin % 20.44% 21.91% 22.60% Net Profit Margin % 13.19% 13.61% 13.58% Inventory Days Debtor Days Creditor Days BVPS DPR % 3.40% 3.09% 3.40% Current Ratio EV EV/Sales EV/ EBITDA PE ratio (x) Price/Book Value (x) Price/Revenue per share (x) Asset Turnover Ratio (x) Raw material / sales 64.76% 64.67% 64.50% Employee cost/ sales 8.09% 7.82% 8.34% Other expenses / sales 6.17% 6.52% 5.54% Operating cash flow/ sales 22.10% 9.57% 8.98%

15 FY 11 results highlights: The net revenue increased by 38% YoY to Rs crores due to high sales volume in FY 11. EBIDTA and PAT increased by 48.24% and 42.72% respectively in FY 011. Even though there were margin pressures across the industry company is able to improve its operating margin and PAT margin. The company has maintained the operating margin at 21%. The EPS increased from Rs to Rs Depreciation was higher at Rs. 149 million against Rs. 76 million (previous year) in view of the full year's depreciation on the 5 MW Wind Turbine Machines commissioned in March The company has recently acquired a leasehold plot of land at MIDC Talegaon Industrial Area. The company is examining various opportunities in respect to the plot. Comparative quantitative figures of sales are as under: Type (numbers) Growth Power Steerings 180, ,342 49% Mechanical Steerings 155, ,151 26% Rack & Pinion 20,430 17,225 19%

16 Growth Triggers Volume benefits from CV up cycle with added upsides if LCVs convert ZF Steering is a supplier of power steering with little competition in the HCV segment and stands to gain from this up cycle. A 34% sales volume growth in buses to 43,081 units and 23% growth in trucks to 201,977 units in FY10 resulted in a 34% growth in Heavy Commercial Vehicles (HCV) sales to 245,058 units If Power steering becomes mandatory in the LCV segment, there will be additional growth in volumes for ZF Steering. Key clients to see strong growth over FY10-FY12E. Key clients such as Tata Motors Ltd., Force Motors Ltd., Ashok Leyland Ltd. and Volvo India Pvt. Ltd. control more than 95% of the commercial vehicles market in India. Our estimates for Tata Motors for FY11 and FY12 stand at 30% and 14% growth, while Ashok Leyland has guided for volumes of 95,000 CVs in FY11 vs in FY10. Almost 65% of the Tata Motor s demand and 35% of Ashok Leyland's demand is met by ZF. Given the strong growth for key customers, ZF Steering is likely to see strong demand for its products over FY10-FY12. Large Cash and Cash equivalent would lead to stronger ROE. As of March 2011 the company had cash per share of Rs 64 per share and cash & investment stood at Rs. 85 crores. Some of this cash will be used to add capacity for new products that will expand the company's offering to its customers. We expect company to pay 21% of EPS as dividend in FY 12.

17 Risk & Concerns Automobile industry, however, is very interest-sensitive. Current inflation is threatening to plunge economy into crisis. Crude oil average crude prices over $100 a barrel and high metal prices could further accelerate inflation and interest-rates. RBI, through its recent policyannouncement, has manifested that the priority is to rein in headline inflation, even at the cost of lower growth going forward. The concerns for the company would be fluctuating rupee, as it imports some of the raw materials and weaker rupee can increase its cost of imports and thereby affect its margins. Cheaper imports from China and the unorganized segment is another area of concern for the company. However, this concern is more in the replacement market. Increasing and volatile prices of inputs like steel bars and tubes could adversely affect its margins. Economic conditions and continuous interest rate hike have hampered the demand of automobiles in India. Cyclical nature of the automobile industry in general and commercial vehicle industry, on which the company is primarily dependent on, in particular is also a concern for the company. Valuation: Continuous growth in the Automobile industry in India would lead to increase in the growth of auto ancillary industry. There is a huge demand of low cost auto ancillary product globally. So in India there is a great opportunity for auto ancillary industry to expand. ZFINDIA is in the process of manufacturing and designing of Hydraulic Power Steering and Mechanical Steering. The stock continues to be attractively valued at 7.18xFY11 and 5.87xFY12 E earnings and close to 3.58% dividend yield for FY12. Cash and investment balance stood at Rs.85 cr and cash per share is Rs.64. Current valuations factor in a slowdown in the commercial vehicle industry, which is likely to be negated by new product introduction. We recommend Accumulate between Rs with the upward price potential of Rs.395/- at 7.66xFY12 E in next months indicating 30% upside from current price levels.

18 For Any Queries please feel free to contact our Institutional Team Names Designation Id. Contact Nagji Rita CMD - - Sales Ravinder Kasliwal Head Institutional Sales ravinder.kasliwal@inveturegrowth.com /66 Dealing Shiv Damani Institutional Dealer shiv.damani@inventuregrowth.com Vinit Rita Institutional Dealer vinit.rita@inventuregrowth.com /66 Rashda Ainapore Research Institutional Dealer rashda.ainapore@inventuregrowth.com /66 Mitesh.shah Research Analyst mitesh.shah@inventuregrowth.com * 562 Divya Kant Research Analyst divya.kant@inventuregrowth.com Akbar Shah Research Analyst akbar.shah@inventuregrowth.com Sheetal Nirmal Research Analyst sheetal.nirmal@inventuregrowth.com Sanjeev Haria Research Analyst sanjeev.haria@inventuregrowth.com Sibayan Banerjee Technical Analyst sibayan.banerjee@inventuregrowth.com Ashok Patel Technical Analyst ashok.patel@inventuregrowth.com Madhu Patel Technical Analyst madhu.patel@inventuregrowth.com Disclaimer Inventure Growth & Securities Ltd has prepared this Document. The information, analysis and estimates contained herein are based on Inventure s assessment and have been obtained from sources believed to be reliable. Neither Inventure Growth & Securities Ltd nor any of its employees or associates accepts any liability whatsoever direct or indirect that may arise from the use of information herein and shall not be responsible for its completeness and accuracy. It is not an offer to sell or a solicitation to buy securities. This document is for circulation only Visit us at Please send your Feed Back to igslresearch@inventuregrowth.com Inventure Growth & Securities Ltd Corporate Office: - Viraj Tower, 2 nd Floor, Near Landmark, Western Express Highway, Andheri East, Mumbai Tel.: , Fax: