GUJARAT AUTOMOTIVE GEARS LTD - RESULT UPDATE

Gujarat Automotive Gears Ltd recommended on 9th January 2015 @ 290.

::LINK TO RECOMMENDATION::

Company has announced December 2014 quarter numbers on 30th January as follows.

As seen above: Sales have declined 27.39% (YoY) and the Net Profit has declined 36.36% (YoY)

It is to be noted that despite weak earnings the company has maintained OPM of 17.36% v/s 17.31% QoQ, As the numbers were not as per our expectations, I decided to speak to the management over the phone about the results and the proposed merger.

I got to speak with the chairman Mr Rajiv Aggarwal this evening who was traveling, and in the brief indulging chat Mr Aggarwal said the quarterly numbers were expected to to be bad, as due to some euro problems many companies have kept their orders on hold. He went further to assert that with the new product launches and aggressive marketing, the company has done good business after December. Lower crude prices too will positively impact the company hence the next quarterly results are quite clearly going to be good. For the new clients addition announced to the exchange he said that there will be great earnings from the new clients approximately after two-three more quarters.

When asked why the outcome of board meeting not submitted to the exchange till now especially announcements relating to the merger which was on the agenda of the board-meet, Mr Aggarwal said that the outcome will be communicated to the exchange on Monday and for the merger nothing concrete has happened as of yet. He did not comment if the promoters are hiking stake ahead of merger, though he hinted if need be they might consider upping the stake to 75% and giving a de-listing open offer for the remaining 25%.

I also asked about ex-promoter Naresh Kothari who has been selling shares in the open market and offloaded the full stake on 30th January 2015, Mr Aggarwal declined to comment on him and played down any insider information about the result angle and suggested the obvious that ex-promoter might even sell if he requires money. 

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All in All i feel, the stock has already corrected sharply as it went 400+ after our post now it is back to 290s. Investors should wait for the earnings to boom as the chairman has asserted next quarterly numbers are going to be good and after two-three more quarters the new products and new clients can generate huge revenue.

As for merger/de-listing, remember the de-listing offer price if any is also calculated as per valuations of its peers, taking a look at other gear companies will show Bharat Gears trading at P/E of 100, Hi-Tech Gears trading at 40+ P/E and Shanti Gears hovering around 95 P/E while Gujarat Automotive is no way expensive and after including this bad quarterly number it is trading at a trailing p/e of under 13.

So the final word is hold patiently with the targets intact and also new investors can add this gem in their portfolio for long-term growth.