Stock Picks

Gujarat Automotive Gears Limited - Smallcap Investment Pick


Gujarat Automotive Gears Limited (GAGL) was established in 1973 at Baroda, India for the manufacture of Auto and Tractor components. Marketed under the brand names of KAG, these components serve the aftermarket and OEM's in India. 




Background:
The company has it's registered office at Solan (HP) and works at Baroda. It is a leading manufacturer and exporter of Tractor and Truck Parts like king pins, transmission components for European & North-American Market, serving the Aftermarket and OEM’s for truck and tractor parts. It has it's presence in countries like Germany Italy, United Kingdom, Egypt, Sri Lanka, Singapore, Malaysia, Thailand, Belgium, Dubai, Australia United States of America, etc. 97.63% of the sales of the company are Exports (FY 13-14) and the management emphasizes on continuing to focus on exports and capture markets by regular visits to trade fares and expos. The company was acquired by HIM TEKNOFORGE in 2013.


Numbers:
The company is a microcap going by it's small paid-up capital of Rs. 35 Lakhs, which means there are 17,50,000 shares of Rs 2 each. The promoter holding (HIM Teknoforge & it's promoters) stands at 67.11% as on 31st December, 2014 (11,74,458 shares). Naresh Kothari (Ex. Chairman) further holds 9.91% shares aggregating to 1,73,378 shares. Deducting the shares held by Institutions (2750), there are roughly 4,00,000 shares available with the retail shareholders distributed among 1300 odd shareholders. This makes the script tough to lay hands on. The promoter holding stood at 67.11% during the quarter ended 31st December, 2014.

As on 31st March, 2014 the company's revenue grew 18.7% from Rs 24.10 Crores in FY 12-13 to Rs 28.63 Crores in FY 13-14 with OPM at 21.13%. PAT grew 14% from Rs 4.08 Crores to Rs 4.65 Crores. As per the financials, the land is valued at Rs. 52,000.

As on 30th September, 2014 the company had reserves of Rs. 20.63 Crores and no long term debt. Short term debt stood at Rs. 2.11 Crores. The company also had given an inter corporate deposit of Rs. 9 Crores during FY 13-14 as disclosed in the related party transactions. Sales stood at Rs 8.49 Crores Vs. Rs 8.41 Crores for Q1 FY 14-15 and Rs 5.63 Crores for Q2 FY 13-14. PAT figures for the same periods are Rs 1.07 Crores Vs. Rs 1.35 Crores Vs. Rs 0.87 Crores. Since Dec '13 the company has been showing strong Year on Year growth every quarter though the QoQ growth has remained flat.

Valuation:
CMP - 335
P/E - 12.32
DY - 0.15%
ROE - 28.5%
Book Value - 120
Market Cap - Rs 58.77 Crores

Expected capital appreciation of 60% in the coming 2 years i.e, Rs 535 levels.

Positives:
- Due to high percentage of sales being exports, the company will benefit from a weakening rupee
- The company is having a high ROE of 28% approximately
- Increasing promoter stake
- No long term debt (As per 30th September, 2014 results)
- BSE Filing - Growth and development plan
- Auto components sector is performing well and is expected to continue performing well for the coming years

Negatives:
- Low volume counter with very low float
- BSE Filing - The increase in limit to give any loan(s) and to give any guarantee(s) or provide any security (ies) in connection with any loan(s) and/or to make further investment/acquisition by way of subscription, purchase or otherwise, the securities of any other body(ies) corporate to the extent of Rs. 50 crores. There is already an ICD of Rs. 9 Crores given to promoter company, will more be given? Is management planning to raise debt for expansion? Further clarification on this management action might be given in coming months.

Disclaimer - This is not a recommendation to BUY/SELL. Readers are advised to consult a registered investment adviser before making any investments. This post is just for knowledge purpose.

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