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Investment Rationale
Bharat Gears Ltd (BGL) is India”s largest non OEM producer of Crown Wheel Pinion – CWP gears or bevel gears manufactured using Gleason & Oerlilon systems. It has a dominant position in the domestic CWP gears in the after market for ring gears and pinions. The After Market segment accounts for about 20% of its revenues.
The `4bn BGL is a leading player in the Tractor gear segment and this segment accounts for about 50% of its revenues.
BGL with two manufacturing facilities (Mumbai & Delhi) is now putting up its third facility at Satara in Maharashtra and shall be spending `650mn in 3 phases financed through debt and internal accruals.
BGL‟s main customers are original equipment manufacturers (OEMs) in the tractor and commercial vehicle (CV) industry. The surge in the volume growth for these OEMs would derive demand growth for BGL‟s products. BGL has marquee customers which include Tata Motors, Mahindra, Ashok Leyland, TAFE, Escorts, VST Tillers Tractors, John Deere, New Holland Tractors, Carraro India, JCB among others.
Shifting from diesel to PNG at its Faridabad unit and converting furnace based on Propane to PNG would in our view reduce power cost next fiscal and improve margins.
Valuation
The `4bn BGL is the largest independent gear producer in India and its present market capitalisation of `400mn is less than even the market value of spare land at its Mumbai facility.
BGL spent over `500mn during the past three years to increase capacities and upgrade technology and this was funded largely through cash accruals of `450mn over this period.
A dominant player like BGL in a business which is both capital intensive and working capital intensive trades at 0.6x book and we believe that with ROCE of over 20% and compelling valuations makes it an excellent small cap pick with an 18 month target price of `125.
Investment Rationale
Bharat Gears Ltd (BGL) is India”s largest non OEM producer of Crown Wheel Pinion – CWP gears or bevel gears manufactured using Gleason & Oerlilon systems. It has a dominant position in the domestic CWP gears in the after market for ring gears and pinions. The After Market segment accounts for about 20% of its revenues.
The `4bn BGL is a leading player in the Tractor gear segment and this segment accounts for about 50% of its revenues.
BGL with two manufacturing facilities (Mumbai & Delhi) is now putting up its third facility at Satara in Maharashtra and shall be spending `650mn in 3 phases financed through debt and internal accruals.
BGL‟s main customers are original equipment manufacturers (OEMs) in the tractor and commercial vehicle (CV) industry. The surge in the volume growth for these OEMs would derive demand growth for BGL‟s products. BGL has marquee customers which include Tata Motors, Mahindra, Ashok Leyland, TAFE, Escorts, VST Tillers Tractors, John Deere, New Holland Tractors, Carraro India, JCB among others.
Shifting from diesel to PNG at its Faridabad unit and converting furnace based on Propane to PNG would in our view reduce power cost next fiscal and improve margins.
Valuation
The `4bn BGL is the largest independent gear producer in India and its present market capitalisation of `400mn is less than even the market value of spare land at its Mumbai facility.
BGL spent over `500mn during the past three years to increase capacities and upgrade technology and this was funded largely through cash accruals of `450mn over this period.
A dominant player like BGL in a business which is both capital intensive and working capital intensive trades at 0.6x book and we believe that with ROCE of over 20% and compelling valuations makes it an excellent small cap pick with an 18 month target price of `125.
Improving Capacity Utilization
The capacity utilization level for automotive gear manufacturing has been remained in the trajectory of 75-80%. For FY‟11 BGL has achieved capacity utilization of over 80% and aims to achieve over 90% in FY‟12E, which is the most efficient level of capacity utilization rate for any player in the gear manufacturing business.
The company is holding a robust order backlog for FY‟12E and based on strong estimated automotive growth, the management is confident to achieve over 90% of utilization rate.
Risks & Concern
Any slowdown in the auto sector can impact the revenue growth going forward. Also, OEM‟s in the non tractor segment have in-house gear manufacturing facilities.
BGL operates in a working capital intensive business and derives close to 30% of revenues from 2 clients – Carraro & John Deere
Margins are susceptible to volatility in raw material prices as it accounts for more than 55% of its revenues and BGL has limited pricing flexibility as the OEMs have bargaining power.
Business Overview:
Established in 1971 by the late Dr Raunaq Singh, Bharat Gears Ltd (BGL) is India‟s largest independent gear manufacturer for the automotive sector producing a wide range of gears for tractors, commercial vehicles, buses and utility vehicles. BGL has a collaboration with ZF of Germany- world leaders in transmission technology.
BGL has two manufacturing facilities – One in Shilphata in Mumbai and the other in Faridabad in Delhi with a total installed capacity of more than 5million gears per annum. Its product profile includes ring and spiral gears and pinions besides transmission and differential gears including shafts and gearboxes.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment Rationale
Bharat Gears Ltd (BGL) is India”s largest non OEM producer of Crown Wheel Pinion – CWP gears or bevel gears manufactured using Gleason & Oerlilon systems. It has a dominant position in the domestic CWP gears in the after market for ring gears and pinions. The After Market segment accounts for about 20% of its revenues.
The `4bn BGL is a leading player in the Tractor gear segment and this segment accounts for about 50% of its revenues.
BGL with two manufacturing facilities (Mumbai & Delhi) is now putting up its third facility at Satara in Maharashtra and shall be spending `650mn in 3 phases financed through debt and internal accruals.
BGL‟s main customers are original equipment manufacturers (OEMs) in the tractor and commercial vehicle (CV) industry. The surge in the volume growth for these OEMs would derive demand growth for BGL‟s products. BGL has marquee customers which include Tata Motors, Mahindra, Ashok Leyland, TAFE, Escorts, VST Tillers Tractors, John Deere, New Holland Tractors, Carraro India, JCB among others.
Shifting from diesel to PNG at its Faridabad unit and converting furnace based on Propane to PNG would in our view reduce power cost next fiscal and improve margins.
Valuation
The `4bn BGL is the largest independent gear producer in India and its present market capitalisation of `400mn is less than even the market value of spare land at its Mumbai facility.
BGL spent over `500mn during the past three years to increase capacities and upgrade technology and this was funded largely through cash accruals of `450mn over this period.
A dominant player like BGL in a business which is both capital intensive and working capital intensive trades at 0.6x book and we believe that with ROCE of over 20% and compelling valuations makes it an excellent small cap pick with an 18 month target price of `125.
Investment Rationale
Bharat Gears Ltd (BGL) is India”s largest non OEM producer of Crown Wheel Pinion – CWP gears or bevel gears manufactured using Gleason & Oerlilon systems. It has a dominant position in the domestic CWP gears in the after market for ring gears and pinions. The After Market segment accounts for about 20% of its revenues.
The `4bn BGL is a leading player in the Tractor gear segment and this segment accounts for about 50% of its revenues.
BGL with two manufacturing facilities (Mumbai & Delhi) is now putting up its third facility at Satara in Maharashtra and shall be spending `650mn in 3 phases financed through debt and internal accruals.
BGL‟s main customers are original equipment manufacturers (OEMs) in the tractor and commercial vehicle (CV) industry. The surge in the volume growth for these OEMs would derive demand growth for BGL‟s products. BGL has marquee customers which include Tata Motors, Mahindra, Ashok Leyland, TAFE, Escorts, VST Tillers Tractors, John Deere, New Holland Tractors, Carraro India, JCB among others.
Shifting from diesel to PNG at its Faridabad unit and converting furnace based on Propane to PNG would in our view reduce power cost next fiscal and improve margins.
Valuation
The `4bn BGL is the largest independent gear producer in India and its present market capitalisation of `400mn is less than even the market value of spare land at its Mumbai facility.
BGL spent over `500mn during the past three years to increase capacities and upgrade technology and this was funded largely through cash accruals of `450mn over this period.
A dominant player like BGL in a business which is both capital intensive and working capital intensive trades at 0.6x book and we believe that with ROCE of over 20% and compelling valuations makes it an excellent small cap pick with an 18 month target price of `125.
Improving Capacity Utilization
The capacity utilization level for automotive gear manufacturing has been remained in the trajectory of 75-80%. For FY‟11 BGL has achieved capacity utilization of over 80% and aims to achieve over 90% in FY‟12E, which is the most efficient level of capacity utilization rate for any player in the gear manufacturing business.
The company is holding a robust order backlog for FY‟12E and based on strong estimated automotive growth, the management is confident to achieve over 90% of utilization rate.
Risks & Concern
Any slowdown in the auto sector can impact the revenue growth going forward. Also, OEM‟s in the non tractor segment have in-house gear manufacturing facilities.
BGL operates in a working capital intensive business and derives close to 30% of revenues from 2 clients – Carraro & John Deere
Margins are susceptible to volatility in raw material prices as it accounts for more than 55% of its revenues and BGL has limited pricing flexibility as the OEMs have bargaining power.
Business Overview:
Established in 1971 by the late Dr Raunaq Singh, Bharat Gears Ltd (BGL) is India‟s largest independent gear manufacturer for the automotive sector producing a wide range of gears for tractors, commercial vehicles, buses and utility vehicles. BGL has a collaboration with ZF of Germany- world leaders in transmission technology.
BGL has two manufacturing facilities – One in Shilphata in Mumbai and the other in Faridabad in Delhi with a total installed capacity of more than 5million gears per annum. Its product profile includes ring and spiral gears and pinions besides transmission and differential gears including shafts and gearboxes.
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