Bharat Gears Ltd - Rs 40.00
Incorporated in 1971, Bharat Gears Ltd (BGL) - belonging to well known Raunaq group is a major global supplier of automotive gears and heat treatment furnaces. It manufactures a wide range of ring gears and fpinions, transmission gears and shafts, differential gears, gear boxes majorly for the automotive industry. Its a leader in India for supply of gear components for heavy / medium commercial vehicles, utility vehicles and tractor segment. The products profile includes hypoid/spiral gears, bevel, straight bevel and transmission gears, complete automotive transmissions, gearbox sub-assemblies, differential assemblies to name a few. On the other hand its furnace division which hardly makes any production now, builds a variety of furnaces such as sealed quench, continuous gas carburisers, rotary hearths etc and even constructs its own tailor made furnaces for manufacture of its own product. Currently, company derives around 15% revenue from exports to Europe, China, USA and also Middle East countries. BGL's customer list includes almost all the players in the automobile industry like Tata Motors, M&M, Ashok Leyland, Bajaj Auto, TAFE, Escorts, Hero Motors, VST Tractors, Hindustan Motors, BEML, JC from India whereas Dana Corporation, TDI & EATON (USA), ZG Group, John Deere group etc are among its international customers.
BGL’s modern manufacturing facilities are located at Mumbra near Mumbai and Faridabad near Delhi. Earlier company was having technical cum financial collaboration with ZF Friedrichshafen AG of Germany. However only couple of years back it got over and now Indian promoters are holding 52% of stake themselves. But over the years, company has developed the technical excellence to manufacture a variety of automotive gears both for domestic and export consumption. Today it is internationally reputed for its cutting edge technology, established quality processes, and capabilities. OEMs and exports account for around 80% of the total customer portfolio, the balance being the replacement market. Incidentally, the opportunities in India are attracting major international OEMs as they have started sourcing components from Indian manufacturers. Further, existing Indian OEMs have stepped up operations to cater to domestic and export requirements. These all augurs well for the company. Besides, as a part of regular up gradation of technology, induction of new state of art equipment to maintain global competitiveness and renovation of critical equipment, BGL has chalked out a capex plan of Rs 35 cr for FY09. This will be funded partly funded by a term loan of Rs 14 cr and balance from internal accrual.
As Indian auto industry especially Commercial/tractor segment is expected to continue its growth momentum going forward, BGL too is estimated to do well in coming years. Although no spectacular growth is anticipated in the company but still it can report a healthy double digit growth. Infact for June’08 quarter it registered 30% growth in topline to Rs 65 cr whereas its profit shot up 160% to Rs 3.20 cr posting an EPS of Rs 4/- for the single quarter. Even for FY08 it reported 20% and 15% growth in sales and net profit respectively. Notably it declared 10% dividend and returned to dividend paying list after a gap of 7 years. Because of its rich experience of nearly four decades, company is able to protect its profit margin despite rising input cost and pressure from OEM at the same time. Accordingly it may maintain its sales of Rs 250 cr and PAT of Rs 10 cr for FY09 i.e. EPS of Rs 13 on current equity. With its gross block of Rs 180 cr and reserves of Rs 35 cr, scrip is trading grossly cheap at market cap of Rs 30 cr or at an EV of merely Rs 80 cr. Investors can buy it as a contrarian scrip which can give 50% return in 9~12 months
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