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All figures are in CAD unless otherwise stated
Highlights
January 2016
Sector: Auto Parts, Consumer Discretionary
Ticker: TSX: MRE
Current Share Price: $9.51 (Jan 21st - Bloomberg)
This report is published for educational
purposes only by students competing in the
Ben Graham Value Investing Competition
We see significant upside potential in MRE share price based on margin improvement,
growth driven by the aluminum segment, leveraging the existing platform and client
relationships as well as narrowing of the valuation gap vs. the peer group
Company growth will be driven by auto sales
Global auto production is projected to grow at a 3% CAGR through 2020. Oil prices are
expected to remain low till 2018. This industry backdrop, combined with a number of
operational items, offer multiple drivers of earnings and share price growth for Martinrea.
Margin expansion following a period of heavy launch activity
As new program wins fill capacity we believe that the operating margins will increase
significantly. Secular drivers include acquisition of Honsel in 2011; it became a leader in
lightweight aluminum products. With the global push to achieve higher fuel economy, light
weighting is expected to become a necessity to comply with increasingly strict regulations.
Global Diversification
Only about 20% of MRE’s 2014 revenues came from outside of North America and Europe. This
represents a significant growth opportunity for Martinrea especially considering its recent
foray into China.
Valuation:
We have valued Martinrea using a DCF approach using both the perpetuity growth and
terminal multiple approaches. According to our calculations, the intrinsic value of Martinrea
share should be between $16 to $19.5; representing a 70 - 105% upside from the current price
levels.
Martinrea
International Inc.
Figure 1: MRE Key Financials
Source: Bloomberg
Recommendation: BUY
Target Price : $16 – $19.5
Upside Potential : 70-105%
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Martinrea International Inc.
Brief Description
Martinrea International designs and manufactures metal parts, assemblies and modules, fluid
management systems and aluminum products primarily for the global automotive sector.
Martinrea primarily manufactures products which include: suspension and chassis metal
components, body and structure metal components, aluminum components, chassis modules,
fluid and air handling systems, and fabricated assemblies. In addition, Martinrea delivers
complete solutions, including engine and transmission, fuel storage and delivery, power steering
and brakes, exhaust and emissions control, and HVAC (heating, ventilation and air conditioning).
The company operates 44 plants across Canada, US, Mexico, Germany, Spain, and Slovakia.
Martinrea primarily serves as a tier I supplier to automotive and industrial OEMs (original
equipment manufacturers). Martinrea’s customers include General Motors, Ford, Fiat Chrysler,
Honda, Nissan, Volkswagen, BMW, Mercedes, Hyundai, and Toyota. The Company also caters to
non-automotive clients such as John Deere and Lennox.
Revenues have grown at a CAGR of 21% over the last 5 years
A portion of the top line growth can be attributed to the acquisition of a majority stake in Hansel
in 2011. The revenues of the company increased to $3.6 billion in the year ended December 31,
2014, an increase of 11.7% YoY. The revenues for the first nine months of 2015 were $ 2.8 billion,
an increase of 7% over the corresponding period last year.
Revenues by region
In 2014, North America contributed 79% of the total revenues and reported an increase in
revenues of 13% YoY. Europe meanwhile contributed 19% of the total revenues and Rest of the
world (Includes Brazil, and China) contributed the remaining 2%. The US, Martinrea's largest
geographical market, accounted for 38.5% of the total revenues in 2014. Revenues from the US
reached C$1,384.7 million in 2014, an increase of 20.5% YoY. Canada accounted for 22.7% of the
total revenues in 2014. Mexico accounted for 18% of the total revenues in FY2014. Germany
accounted for 15.8% of the total revenues in FY2014. Spain accounted for 2.5% of the total
revenues in FY2014.
0 1,000 2,000 3,000
North America
Europe
Rest of the World
2014 Annual revenues by region
($M)
0
1,000
2,000
3,000
4,000
2010 2011 2012 2013 2014
Annual revenues ($M)
Figure 2: MRE Global Presence
Source: Company Reports
Figure 3: Revenue Growth
Source: Company Reports
Figure 4: Revenue by region
Source: Company Reports
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Martinrea International Inc.
Investment Thesis
Martinrea trades at a discount relative to its peers
Martinrea currently trades at 1-year forward EV/EBITDA multiple of 4.6x vs. the peer group 1-
year forward EV/EBITDA multiple of 6.8x. We expect a narrowing of the multiple discount
over the forecast horizon for MRE vs. the peer group. (Appendix-8)
Increase in Auto Car Sales over the forecast period
Low oil prices, sustained consumer confidence levels (Source: Nielsen Q3 2015 Consumer
Confidence report) and low interest rate environment across North America and Europe will
drive the vehicle sales. Increase in vehicle sales will positively affect the revenues of MRE.
Diversified and strong customer base
Martinrea is a Tier One supplier of automotive parts, assemblies and modules. Martinrea
supplies its products to some of the world's leading automobile companies such as Ford
Motor, Fiat Chrysler Automobiles, GM, Jaguar, Peugeot-Citroen, TRW Automotive, Daewoo,
Nissan Motor, Renault, Volkswagen, BMW, Mercedes, Volvo Cars, Kia Motors etc. A strong
customer base that is geographically diversified will enable the company to maintain a
consistent flow of orders and insulate the company from region specific problems.
Research and development capabilities
Martinrea has strong engineering and research and development (R&D) capabilities. The
company spent C$18.4 million on research and development in 2014, an increase of 9.3%
YoY. Some Examples of Martinrea’s proprietary technologies include cap less refueling
systems and the tubing product families of P-CAP® (Pilot Conductive Anti-Permeation); E-P-
CAP® (Elastomeric Pilot Conductive Anti-Permeation); RE-P-CAP® (Reinforced E-P-CAP®) X-
PERM® (low cost, high performance 5 layer construction);P-TEC®; ZLT® (Zero Leak Technology
high pressure fittings); Infinicote®/Martincote® (a range of environmentally friendly, low cost,
corrosion resistant coating for steel, stainless steel and aluminum, which was nominated for a
PACE award). Martinrea's strong engineering and R&D capabilities support it in pursuing
future business opportunities and in differentiating itself from its competitors.
Figure 6: MRE Customers
Source: Company Reports
Figure 5: MRE Stock performance in 2015
Source: Bloomberg
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Martinrea International Inc.
Acquisition of Honsel provides the opportunity to capitalize the trend of light weighting
Martinrea Honsel, a leading supplier of aluminum components to the automotive industry,
specializing in structural parts, engine blocks and other selected aluminum automotive parts.
The acquisition allows the company to capitalize further on the trend to lighter weight
aluminum-based solutions and pursue growth opportunities in this area. The aluminium
content of the vehicles is expected to increase over the next decade that places Martinrea in
a favourable position as compared to its competitors
Figure 7: Forecast of Aluminium content in vehicles
Source: North American Light Vehicle Aluminium Content Study, June 2014, Ducker Analysis
Experienced Senior Management
As the company grows its operational capacity and leverages its strengths to capitalize on
the market opportunities, it has senior leadership to guide the company through this
growth period and create value for the shareholders. (Appendix-1)
Strong order book
The company has strong order wins/contracts for supply of auto parts to major OEMs such
as Jaguar and Land Rover, GM, Volvo, Ford and Daimler for which the production
commences in 2015 and will lead to incremental revenues for the company over the
forecast period. (Appendix-2)
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Martinrea International Inc.
Valuation (Appendix-3 to Appendix 8)
We have chosen to value MRE using the Discounted Cash Flow approach. We believe that
discounting the Free Cash Flows to the firm is the most appropriate approach to value MRE as
the company acquired significant debt for acquiring the balance stake in Honsel. MRE has
high growth prospects and the DCF appropriately reflects the free cash flow of the company
while accounting for growth in a long-term perspective. The cash flows have been discounted
at a cost of capital of 9.2% . The intrinsic per share value of MRE calculated from this model is
in the range of $16 (terminal value calculated using the Gordon growth model) to $19.6
(terminal value calculated using an EV/EBITDA multiple) representing an upside of 76% to
114% (based on share price of MRE as on 21
st
January).
We have assumed that MRE has made all the necessary investments to build a strong
platform. Going forward we expect MRE to leverage this platform and its relations as a Tier I
supplier with the OEMs. The global drive to manufacture fuel efficient cars will ensure that
MRE can win orders to fulfil its capacity while improving its margins too. The global auto
industry is projected to grow at a CAGR of 3% till 2020. We too have assumed that MRE grows
at the same pace i.e. an annual sales growth rate of 3% for the next 5 years. We have
assumed that economies of scale realized by MRE would ensure that the operating expenses
would stabilize at the current levels. We have also assumed that MRE would not need to
invest significantly in expanding its capacity over the next 5 years.
Terminal Value
To calculate the terminal value, we used both the Gordon growth approach and the terminal
multiple approach. We have assumed that beyond the 5 year period MRE will continue to
grow at an annual rate of 2% per year. Using the Gordon growth approach we get an intrinsic
value of $16.1, representing an upside of 76% to the closing price as on 21
th
January.
Additionally, we have even used the terminal multiple approach to calculate the terminal
value. We have assigned an EV/EBITDA multiple of 6.2x to the EBITDA of 2020. The peer
group of MRE trades at an average EV/EBITDA multiple of 6.8x. MRE has been trading at a
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Martinrea International Inc.
peers since 2013 due to some accounting and management issues which have since been
resolved favorably. We feel that this discount is not justified owing to the strong platform
and the relationships that MRE has built with the OEMs. We also believe that in the next
five years, due to the strong positive cash flows and reduced investment requirements,
MRE can significantly de-lever its balance sheet. Using the terminal multiple approach, we
calculated an intrinsic value of $19.6 for MRE. This represents an upside potential of 114%
to the closing price as on 20
th
January.
Risks to our valuations:
A slower than expected pace of auto industry recovery, macroeconomic factors, customer
concentration, and the financial health of those customers, and pricing pressure represent
significant risks to our price target estimation.
Financial Analysis
Top Line Growth
The revenue has grown at CAGR of 21% over the past 5 years (2010-2014). This impressive
result was primarily driven by a number of reasons as a result of both organic growth and
strategic planning. Since MRE’s successful acquisition of a majority stake in Honsel AG in
2011, a sharp increase in revenue was realized due to the consolidation of financial
reports. For the following years, the company managed to sustain the momentum as more
OEMs have switched to light vehicle production. As the industry moves away from the
slump and continues its reversal, a gradual to moderate growth can be achieved in the
near term. In a longer horizon, due to the cyclical nature of the industry and due to low oil
price becoming the new norm, we believe that an annual growth of at least 3% can be
sustained.
0
1000
2000
3000
4000
5000
2015F 2016F 2017F 2018F 2019F 2020F
Forecasted yearly revenues ($M)
Figure 8: MRE Outstanding Debt
Source: Team Analysis, Industry
Reports
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Martinrea International Inc.
Margins
As MRE grows and streamlines acquired business line, we will see the ability to grow its
operating profitability. MRE’s gross margins have been around 11% historically. However, the
slowdown in Chinese economy will reduce global aluminum consumption and therefore reduce
the cost of producing auto parts. Additionally, the company will realize the synergy from the
acquisition made earlier as economy of scale can be achieved. We project that the EBIT margin
will improve by 5 percentage point over the next few years to reflect the above mentioned
factors.
Debt Burden
MRE has raised term loans to finance their acquisition to Honsel AG, which worsens their debt
to equity ratio to 1.0x. The company has realized the risks associated with high debt level and
shown commitment to bring their capital structure to the optimal level. With the hope that the
company can repay 90% of their long-term borrowing by 2020, we believe the company will
further benefit from a healthy balance sheet.
Capital Structure
The purchase of both the initial interest in Martinrea Honsel in 2011 and the purchase of the
balance of the ownership in August 2014 was financed using debt. Although the debt levels
increased with the purchase, the financial ratios remained strong, as the cash flow of Martinrea
Honsel supported the new debt. Currently, the Net Debt/EBITDA ratio is approximately 2.5 times
which is manageable due to the strong cash flows of the company. This ratio is supported by
increasing cash flow; the EBITDA in the first quarter of 2015 was $74.9 million. Further, the
company has targetted Net Debt/EBITDA ratio of 1.5 times by the end of 2017, achievable by
increasing cash flow and pay down of debt from that cash flow.
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
2015 2017 2018 2019 2020
Debt Outstanding at year endThousands
Figure 9: MRE Outstanding Debt
Source: Company Reports
Figure 10: MRE OCF
Source: Company Reports
$M
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Martinrea International Inc.
Strengths
Diversified product offering
Strong market position
Robust client base
Extensive research and
development, and
engineering capabilities
Strong order wins
Opportunities
Positive outlook of new car
market in the US
Acquisition of Honsel
Weaknesses
Litigations and lawsuits
Increasing debt burden
Threats
Intense competition
Fluctuating prices of raw
materials
Reliance on few suppliers
for bulk of raw materials
Company Analysis:
The company’s strong market position, diversified product offering as well as client base place it
in a solid spot to realize the opportunities that exist with a positive outlook for the North
American car market (US, Canada and Mexico contributed 80% of the firm’s revenues in 2014)
over the next 3-5 overs and with the acquisition of Martinrea Hansel, which has diversified the
product portfolio of the company as well as placed it in a position to take advantage of the trend
of light weighting vehicles by increasing the use of Aluminum in vehicle manufacturing. These
strengths and opportunities outweigh the weaknesses and threats that exist. The company used
debt to finance its acquisition of Hansel which is expected to retire over the next few years with
increased cash flows and margins that are expected to improve as synergies are realized. (Source:
Martinrea Annual Report-2014, Chairman’s message). The company has compelling market
strength which it can leverage to counter its reliance on few suppliers as it can offer big business
opportunities to these suppliers on the basis of its order wins from major OEMs. The commodity
price risk is depressed for next few years since prices of oil, aluminum, steel and rubber are
expected to remain low.
Industry Analysis (Appendix-9)
Since no company holds a market share of more than 10%, the industry is not concentrated. The
industry is in a mature phase and competition among the companies is high based on price,
quality and the product volume. High competition and low margins characterizes this industry.
The auto industry is experiencing a shift towards the use of lightweight materials in auto parts.
So, the companies that are quick to respond to this change in the marketplace stand to benefit.
Even though the suppliers of auto parts industry are concentrated, the low commodity prices
(mainly steel, aluminium and resin-derived from oil) are expected to limit the bargaining power
of the suppliers as recent trends in commodity prices are expected to continue in the near future.
Since, the industry is characterized by high investments in capital and, research and
development, the ability of the new manufacturers to come into the industry is limited.
Figure 12: Industry Analysis
Source: Company Reports,
IBISWorld reports, Team Analysis
Figure 11: SWOT Analysis
Source: Company Reports, Team
Analysis
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Martinrea International Inc.
Risks:
Operating in a fairly mature and relatively stable industry, MRE’s success is primarily
determined by the global auto production volume. Other aspects of the business are relatively
stable in the short term. Risks, varying in different degree, will arise from the following sources:
Operations (related to the issues of products quantity sold on contracts, production costs, and
successful integration); Competition, Regulatory changes, Valuation, and General Economic
Conditions.
Investment Risks
Operational Risks:
1. Dependency on Key Clients: Auto parts are produced and revenue is collected based
on contracts with downstream clients. Early termination and cancellation of contract,
loss of customers due to competition, insolvency of the customers could significantly
reduce company’s revenue and profitability. For example, Volkswagen, which
currently contributes 8% of MER’s revenue, might cut down procurement order size in
anticipating reduced vehicle sales due to their impaired reputation. However, these
events are foreseeable because revision on purchase order usually lags behind OEMs’
poor performance.
2. Commodity Price Risks: As a result of volatile commodity prices in recent years, the
company has adopted “price adjustment mechanism” in pricing some of their auto
parts made of aluminum. However, MRE can not fully hedge risk and passes on
increased commodity price to customers because this mechanism is not applied to all
their products.
3. Currency Risk: The vast majority of company’s revenue is earned in US dollar and
Euro. Company’s earning may experience somewhat fluctuation after translated in
domestic currency. Although adopting hedging strategy may prevent earning swing,
the appreciation of Canadian dollar against foreign currency will negatively affect the
competitiveness of MRE made auto parts.
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Martinrea International Inc.
4. Post-acquisition Integration Risk: To sustain company’s future growth, successfully
integrating acquired assets into MRE’s existing operation is critical. Risks may arise from
internal competition as a result of product offering overlapping.
5. Cost Absorption Risk: The industry trend of auto suppliers absorbing costs related to
product development, engineering, prototype, and validation that were used to be
subsidized by the OEMs has become common. In order to fully recover these costs, MRE
has to deliver adequate number of products.
Macro Risk:
The automotive industry is highly cyclical and largely dependent upon the global and regional
economic conditions. The North American auto industry has just experienced a fast growing
period in the past year after a notable slow down since 2008. Even though uncertainties do exist
in the short to mid-term, the industry will continue its growth with global economy over the long
term.
Competition Risks:
The industry players all produce standardized products that are similar in function and quality.
MRE faces intense competition from numerous players. Some of them have more favorable
competitive positions and access to more resources. Competitive advantages can be achieved
primarily through industry consolidation and industry integration that broadens market offering
and enhances economies of scale respectively.
Regulation Risks:
The company has been involved in a series of lawsuit and claims against former management.
The corresponding result may include legal obligations and fines. The company’s operation will
also be adversely impacted by change in tariffs and import duties imposed on their products.
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Martinrea International Inc.
Appendix 1-Senior Leadership (Source – Company Reports, Bloomberg)
Pat D’Eramo, President and Chief Executive Officer
Mr. D’Eramo has been the President and Chief Executive Officer at Martinrea since 2014. Prior to this, he was the
President at Dana’s Commercial Vehicle Technology Group. Previously, Mr. D’Eramo was the Chief Manufacturing
Officer, Asia Pacific, North America and South America and President North America at Benteler Automotive. From
2001 to 2009, he served at Toyota as a Vice President of manufacturing after holding several roles.
Fred Di Tosto (Chief Financial Officer)
Mr. Di Tosto has been the Chief Financial Officer at Martinrea since 2011. He is also the Chief Financial Officer at
Martinrea Honsel Group. Mr. Di Tosto previously worked at KPMG and was hired in 2010 as the Vice President of
Finance at the company.
Robert P. Wildeboer, Executive Chairman-Board and co-founder
Mr. Wildeboer has been the Executive Chairman at Martinrea since 2001. Mr. Wildeboer is a Director and Vice
Chair at the Automotive Parts Manufacturers Association; a Director at the Canadian Automotive Partnership
Counsel; a Member at the Ontario Manufacturing Council; and Member of Economic Advisory Council to the
Minister of Finance of Canada.
Daniel Infusino, Executive Vice President
Mr. Daniel Infusino serves as an Executive Vice President of Business Development & Engineering and Vice
President of Operations at Martinrea International Inc. Mr. Infusino served as Vice President of Automotive
Systems at Martinrea International Inc and of Corporate Business Development at Martinrea International Inc.
Prior to May 2002, he served as an Executive Vice President, Sales and Marketing at Rea International Inc.
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Martinrea International Inc.
Appendix 2- Order wins from major OEMs and Start of Production (SOP) year (Source-Company Reports)
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Martinrea International Inc.
Appendix 3- Discounted Cash Flow analysis for Martinrea International
In Millions of CAD Dec 09 A Dec 10 A Dec 11 A Dec 12 A Dec 13 A Dec 14 A Dec 15 E Dec 16 E Dec 17 E Dec 18 E Dec 19 E Dec 20 E
Revenue (Estimate Comparable) 1,138 1,689 2,193 2,901 3,222 3,599 3,788 3,930 4,181 4,398 4,551 4,688
% YoY Growth 48% 30% 32% 11% 12% 5% 4% 6% 5% 3% 3%
(-) Cost of Revenue 1,010 1,481 1,907 2,619 2,896 3,251 3,388 3,499 3,692 3,883 4,019 3,952
% of Revenue 89% 88% 87% 90% 90% 90% 89% 89% 88% 88% 88% 84%
(=) Gross Profit 128 208 286 282 326 348 400 430 489 515 532 736
% Margin 11% 12% 13% 10% 10% 10% 11% 11% 12% 12% 12% 16%
(-) Operating Expenses/Income 129 132 178 164 180 200 230 226 244 257 266 437
% of Revenue 11% 8% 8% 6% 6% 6% 6% 6% 6% 6% 6% 9%
% YoY Growth 2% 35% -8% 10% 11% 15% -2% 8% 5% 3% 64%
(=) Operating Income (2) 76 108 118 146 148 170 205 245 258 267 299
% Margin 0% 5% 5% 4% 5% 4% 4% 5% 6% 6% 6% 6%
(-) Tax on Operating Income - 16 28 36 69 30 50 63 78 82 77 91
% Tax Rate 0% 21% 26% 31% 48% 20% 29% 31% 32% 32% 29% 30%
(=) NOPAT (2) 60 80 82 76 118 120 142 167 175 190 208
% Margin 0% 4% 4% 3% 2% 3% 3% 4% 4% 4% 4% 4%
(+) Depreciation & Amortization 54 49 61 79 101 113 136 129 130 149 168 173
% of Revenue 5% 3% 3% 3% 3% 3% 4% 3% 3% 3% 4% 4%
% YoY Growth -9% 25% 30% 28% 12% 20% -5% 1% 14% 13% 3%
(-) Capital Expenditure 51 91 149 201 180 204 192 197 210 210 200 200
% of Revenue 5% 5% 7% 7% 6% 6% 5% 5% 5% 5% 4% 4%
% YoY Growth 77% 64% 34% -10% 13% -6% 2% 7% 0% -5% 0%
(-) Changes in Net Working Capital 13 (8) 63 (22) 43 (65) 9 15 (5) 0 (12) 2
% of Revenue 1% 0% 3% -1% 1% -2% 0% 0% 0% 0% 0% 0%
(+) Changes in Net Long Term Deferred Tax Liabilities(34) (4) 5 (12) 17 (25) 4- 3- 6- 4- 10- 6-
% of Revenue -3% 0% 0% 0% 1% -1% 0% 0% 0% 0% 0% 0%
(+) Other User Estimated Non-Cash Adjustments - - - - - -
% of Revenue 0% 0% 0% 0% 0% 0%
(=) Free Cash Flow (46) 22 (66) (29) (29) 67 51 55 86 109 159 172
% Margin -4% 1% -3% -1% -1% 2% 1% 1% 2% 2% 3% 4%
% YoY Growth -148% -399% -56% 1% -330% -24% 8% 56% 27% 45% 8%
% of the Free Cash Flow to be discounted 0% 100% 100% 100% 100% 100%
Period for Discount Factor (Mid-Year Convention) - 1.00 2.00 3.00 4.00 5.00
Discount Factor @ 9.2% WACC - 0.92 0.84 0.77 0.70 0.65
Present Value of Free Cash Flow (5 Years) - 51 72 84 112 111
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Martinrea International Inc.
Appendix 4: Terminal value calculation using the Gordon Growth model
Appendix 5: Terminal value calculation using the EBITDA multiple approach
Free Cash Flow at Year 5 172
WACC 9.2%
Perpetuity Growth Rate 2.0%
Perpetuity Value at End of Year 5 2,459
Present Value of Perpetuity (@ 9.2% WACC) 1,587
(+) Present Value of Free Cash Flows (@ 9.2% WACC) 431
(=) Current Enterprise Value 2,000
Short Term Debt 38
(+) Long Term Debt 655
(-) Cash and Marketable Securities 52
(-) Current Net Debt 640
(-) Current Preferred and Minority Interest (0)
(=) Equity Value 1,377 1,360
Shares outstanding 86 86
Estimated Value per Share (CAD)
Current Price (CAD) 9.51
Estimated Upside
2,017
15.95
68%
Perpetuity Growth Method - Value per Share
Terminal EBITDA at Year 5 472
WACC 9.2%
Exit Enterprise Value / EBITDA 6.2x
Terminal Value at End of Year 5 2,930
Present Value of Terminal Value (@ 9.2% WACC) 1,891
(+) Present Value of Free Cash Flows (@ 9.2% WACC) 431
(=) Current Enterprise Value
Short Term Debt 38
(+) Long Term Debt 655
(-) Cash and Marketable Securities 52
(-) Current Net Debt 640
(-) Current Preferred and Minority Interest (0)
(=) Equity Value 1,682
Shares outstanding 86
Estimated Value per Share (CAD)
Current Price (CAD) 9.51
Estimated Upside
EBITDA Multiple Method - Value per Share
2,321.8
105%
19.48
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Martinrea International Inc.
Appendix 8: Relative Valuation for Martinrea International
Name Mkt Cap (CAD) Last Price EV ($bn)
Forward
EV/EBITDA (1yr)
Revenue 5Yr
CAGR
EBITDA 5Yr
CAGR
MARTINREA INTERNATIONAL INC 0.8 9.5$ 1.5 4.6x 18.7% 19.8%
SHILOH INDUSTRIES INC 0.1 4.0$ 0.5 18.6% -1.3%
LINAMAR CORP 3.7 56.7$ 4.9 3.9x 18.0% 27.4%
BORGWARNER INC 9.4 29.2$ 15.2 5.0x 6.0% 11.9%
TENNECO INC 3.1 37.6$ 5.1 4.0x 5.6% 9.7%
JOHNSON CONTROLS INC 32.6 35.2$ 44.4 6.7x -0.7% 9.0%
LEAR CORP 10.9 101.4$ 9.7 5.0x 9.0% 14.4%
AMERICAN AXLE & MFG HOLDINGS 1.4 13.1$ 3.6 3.6x 9.5% 8.3%
AUTOLIV INC 13.4 106.6$ 11.0 7.3x 4.6% 0.8%
CONTINENTAL AG 60.0 193.4$ 53.8 6.8x 8.2% 13.4%
DANA HOLDING CORP 2.5 11.4$ 4.8 3.7x -0.6% -1.2%
DELPHI AUTOMOTIVE PLC 26.1 65.1$ 27.0 7.5x 1.9% 0.9%
FAURECIA 7.1 33.4$ 7.6 3.6x 0.0% 0.0%
METALDYNE PERFORMANCE GROUP 1.3 13.0$ 3.5 5.0x 0.0% 0.0%
MOBILEYE NV 8.6 27.9$ 9.6 31.4x 0.0% 0.0%
MAGNA INTERNATIONAL INC 19.9 49.3$ 25.6 3.9x 5.8% 10.4%
Mean 6.8x 6.53% 7.72%
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Martinrea International Inc.
Appendix 9 – Porter’s Five forces Analysis:
Threat of new entrants
The industry has medium levels of barriers to entry. Auto parts manufacturing requires higher initial set-up costs as
it is part of a capital intensive industry and significant investment in research and development is required to keep
pace with the changes in production processes, equipment and materials. The suppliers also need to provide large
volumes of their products at lower unit costs. Any new entrant to this industry would need to establish a network
of customers and suppliers within an extremely competitive global supply chain.
Threat of substitutes
The auto industry is increasingly moving towards a trend of using lightweight materials to improve the vehicle
emissions and meet the stricter emission norms. So, the auto parts suppliers need to constantly innovate to light
weight their parts which might include changing materials such as the use of aluminium instead of cast iron to
make cylinder blocks. So, in our view, there is the medium threat of substitutes for the auto parts manufacturers
who are slow to respond to this change.
Bargaining power of buyers
The customers or the buyers for the auto parts industry is the auto manufacturing industry. The bargaining power
of the buyers is high. The auto parts supplier need to provide large volumes of the products at lower unit costs and
are dependent on the OEMs for the business. The industry is in the mature phase and highly fragmented which
add to the bargaining power of the buyers.
Bargaining power of suppliers
The bargaining power of the suppliers is medium to high. The suppliers of raw materials (Aluminium, steel, plastic
etc.) to the auto parts manufacturers are concentrated which adds to the power of the suppliers. Since commodity
prices are depressed currently and with expectations of lower prices to continue in the future along with the
commodity demand being lower, the bargaining power of the suppliers is limited.
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Martinrea International Inc.
Rivalry among the existing competitors
The markets for fluid handling systems cast aluminum products and fabricated metal products and assemblies for
automotive and industrial customers are highly competitive. The company faces numerous competitors in its
markets, which compete with the company on a limited or broad geographic, product-specific or application-
specific basis. Some of the company's competitors have substantially greater financial, marketing and other
resources than the company. Hence, intense competition could result in price and margin pressures which could
adversely impact Martinrea's business prospects and financial position.
