Bharat Gears - Rs.46.00

Bharat Gears Ltd, promoted by Bharat Steel Tubes and Raunaq & Co. in collaboration with ZF Friedrichshafen (ZFF), Germany, was incorporated in 1971 to manufacture automotive gears. The foreign collaborator holds 26 per cent stake in the company. Today, it is one of the largest gear manufacturers in India producing a wide range of gears - hypoid, spiral gears and differential gears, which go into axle assemblies and parallel axes gears and shafts that make up the gear box assembly. The company supplies to OEMs in Tractors, Trucks and Bus and Utility vehicles. It also serves the replacement market and exports to overseas market. The Company also specializes in heat treatment furnaces, manufactured and installed under licence from Holcroft, USA. It has a diversified client base with many OEM manufacturers including M&M, Ashok Leyland, Toyota Kirloskar Auto Parts, Volvo India, TAFE, Hindustan Motors, Escorts as domestic clients and New Holland, L&T John Deere, Same Deutz-Fahr, ZF Hungary, ZF China, Funk USA, TDI USA are some of its international clients. Its gear manufacturing units are located in Mumbra near Mumbai and Faridabad in Haryana near Delhi.

Bharat Gears actual turnaround in Q1FY05 was thanks to the financial restructuring package, which was approved under Corporate Debt Restructuring (CDR) scheme in FY04. Under this scheme, financial institutions and banks sanctioned additional term loans amounting to Rs.12.05 cr. and enhanced working capital facilities. Further, 10 per cent preference shares of Rs.2.08 cr. have been issued to institutions and banks as part of their dues. Monies were also received from ZFF and Indian promoters aggregating to Rs.3 cr. as stipulated in the CDR package. A part of the company's corporate office premises was sold during the year resulting in a profit of Rs.5.51 cr. Proceeds from this sale were utilised towards repayment of term loans. Total repayment of long term loans in FY04 amounted to Rs.6.46 cr. Further repayment of other term loans/debentures/10 per cent preference shares falling due for repayment during the year were rescheduled / rolled over in terms of the CDR package. In short, this restructuring scheme has resolved most of the issues and has brought the company back on track.

The benefit of this financial restructuring in FY04 can be seen in the first half FY05 results. In both the quarters, the company reported good profits with substantial improvement in operating margins. For the half-year ending September’04, it registered Net sales of Rs.66 cr. up 70 per cent and earned a NP of Rs.2.30 cr. against a net loss of Rs.6.40 cr. last year. Currently, the company is also concentrating on exports and has receiving good orders from Europe, China, USA and the Middle East. Here in the domestic market also, the demand is expected to increase due to the aggressive growth plans of all OEMs in the auto sector and tractor sales picking up. To sum up, the future looks promising for the Bharat Gears and it could post a sale of Rs.120 cr. and earn a NP of Rs.4.75 cr. i.e. an EPS of Rs.8 on a small equity of Rs.6 cr. With auto outsourcing expected to boom in coming years, this auto ancillary should be accumulated for 100 per cent appreciation in 18~24 months.