28 June 2011

Road to Success - Pune Day; Visit Note ::EMkay

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Road to Success - Pune Day; Visit Note
We did a road-trip to Pune with investors to meet companies in the Auto ancilliary space – namely Bharat Forge, Autoline Industries and TRF. Key takeaways from the investors’ and managements interaction are outlined below:
Autoline Industries
Management indicated strong topline for FY12 backed by robust volume outlook for  Tata Motors (LCV/UVs) and higher business from new clients.  Expect minimal capex  requirement for FY12 due to low capacity utilisation at Chakan ( 60%). Capacity utilisation at pantanagar is high due to strong volumes for Tata Ace.  Expect net margins to remain rangebound between 4% - 5% in FY12. Company is in active discussion for outright sale of 100 acre land in Chakan Industrial Area. However. it is not in a hurry to sell the land.
Bharat Forge
Company expects moderate growth of 10% in domestic MHCVs. Subsidiaries have achieved break even in FY11. Management expects subsidiaries to contribute to earnings meaningfully in FY12 as operating leverage starts kicking in. Company reiterated its strong focus on non auto segment with a target revenue mix of 40% (currently 25%). Non Auto segment  has higher margins. However, in longterm expect margins for auto and non auto to be similar.
TRF
The visit aided investors to gain clarity on TRF’s automotive business – especially York Transport Equipments and JV Tata DLT, which together contribute over 75% of automotive revenues and over 30% of consolidated revenues. The management gave an in-depth insight into the markets catered. They also shared a strong positive outlook for the above businesses and expects the automotive business to drive incremental earnings growth. However, the management once again postponed pegging the expected operating margins.

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