Raunaq Automotive - Rs.28.75

Raunaq Automotive components (RACL) was established in 1989 as a joint sector project between the Pradeshiya Industrial & Investment Corporation of UP Ltd. (PICUP) and Bharat Gears Ltd to manufacture high quality transmission gears & shafts for automotive & industrial applications and belongs to the well-known Raunaq Group, which consists of companies like Apollo Tyres, Bharat Gears, Premier Tyres, Raunaq Intl, Raunaq Finance, Apollo Finance, Apollo Intl’ and Bharat Steel. Today, RACL is the largest transmission component manufacturer in North India catering to import substitution of critical transmission components. Apart from manufacturing all types of transmission gears for a variety of vehicles including two-wheelers, tractors, cars and jeeps, LCVs and heavy vehicles, it also makes axle shafts mainly for heavy vehicles. Besides engine timing gears, sprockets/ratchets, industrial gears, synchronizing cones and rings etc are also produced by the company.

RACL's has a huge hi-tech manufacturing facility at Gajraula about 100 km. from Delhi. It has the most advanced gear cutting system as well as state-of-the-art programmable fully automated CNC machines that enhance accuracy and reliability of every transmission gearing component and axle shaft. Due to its superior quality and timely delivery, it has a reputed clientele comprising Tata Motors, M&M, Ashok Leyland, Greaves, Yamaha, Honda, Escorts, Force, Hero, VST Tillers etc. Apart from the domestic market, RACL has developed products for export for prestigious international customers like Kubota, Alois Pottinger, Bombardier Rotax, Areva T&D, Herotec etc. It also supplies to leading OEMs in Japan, Austria, Germany and other European companies. Although the margins of this industry have come down in the recent past due to stiff competition and pressure from OEM, still RACL has a strong potential for growth due to the heavy demand in the domestic market as well as the global sourcing requirement of overseas automotive manufacturers.

Earlier, RACL was a loss making company but it made a strong turnaround in FY06 due to a BIFR rehabilitation scheme. It still it has accumulated losses of Rs.4 cr., which will be wiped off in this fiscal. It has undertaken various restructuring steps like broadening its distribution network, closing down some uneconomical branches, cutting down the cost of manufacturing, increasing efficiency, reducing waste etc. With these measures, the company has made a successful turnaround and for the nine months ending 31st December 2006, its sales scaled up by 50% to Rs.39 cr. and net profit shot up 70% to Rs.3.25 cr. Applying this for full year, it may clock a turnover of Rs.55 cr. with PAT of Rs.4.50 cr., which translates into an EPS of Rs.6 on its current equity of Rs.7.93 cr. For FY08, it can report an EPS of Rs.8. Therefore, investors are recommended to buy it at current levels as it can easily give 50% return in 12-15 months.