Friday, 9 January 2015

VALUE PICK - GUJARAT AUTOMOTIVE GEARS LTD.


About The Company
  Gujarat Automotive Gears Ltd. established in 1973 at Vadodara (Baroda) is a fast growing auto and tractor components export oriented manufacturing company.

 The company initially founded by Kotharis is now owned by HIM Teknoforge Ltd (HIM GROUP), Headquartered in Baddi, Himachal Pradesh, The company's manufacturing unit is located at Kalali, Vadodara equipped with the latest technology to take on increasing chinese exports to the global after-market.
 
The Ace Investor - Value Pick
(BSE:505712) GUJARAT AUTOMOTIVE GEARS LTD.
Debt-Free company listed on BSE, Currently trading around 290 at a P/E of 10 with a Market Cap of about 50 crores, With consistent topline growth, consistent dividend paying record and strong promoter holding of 65.44%.

 GAGL is engaged in the manufacturing and export of tractor and auto components (i.e. Transmission Gears, Pins, Axle Shaft, Propeller Shaft Components, Wheel Spanners.) under the brand name "KAG"
Exports form about 97% of the total sales of the company, The company is actively exporting to Europe, North America, South Asia, Middle East, & Sri Lanka, The Indian market forms only 3% of total sales.

GAGL has been recently acquired by HIM Group along with Globe Precision Industries Pvt Ltd., HIM TEKNOFORGE LTD is a forging manufacturer and gear manufacturing company supplying to major OEMs like Ashok Leyland, Swaraj Mazda, Escorts, Bharat Gears, Mahindra & Mahindra, It also supplies to the Indian Railways and Defense sector.

HIM Teknoforge with the acquisition of GAGL is bullish on the exports market and now planning to tap the markets of Africa & South America and other untapped countries.

Another positive factor for future is a merger with HIM Teknoforge, Immediately after GAGL takeover, in Nov 2013 GAGL board approved the proposal to evaluate/explore potential merger/amalgamation of HIM Teknoforge with GAGL hinting at things slated to come in the future, Merger with listed companies is often a route taken by unlisted companies to tap the bourses.

Coming to the financials, Gujarat Automotive has been showing consistent topline growth with excellent operating profit margins, See the annual results table below.

Particulars
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Sales
6.99
8.27
10.13
10.71
12.91
14.48
17.63
22.40
24.10
28.63
Operating Profit
0.67
0.73
0.96
1.08
2.11
2.62
2.39
5.14
5.64
6.05
OPM
9.59%
8.83%
9.48%
10.08%
16.34%
18.09%
13.56%
22.95%
23.40%
21.13%
Other Income
0.19
0.08
0.00
0.10
0.00
0.09
0.52
0.61
0.90
1.35
EBIDT
0.86
0.81
0.96
1.18
2.11
2.71
2.91
5.75
6.54
7.40
Interest
0.25
0.24
0.28
0.19
0.38
0.09
0.08
0.04
0.04
0.03
Depreciation
0.22
0.19
0.18
0.22
0.27
0.27
0.29
0.36
0.45
0.44
Profit before tax
0.39
0.37
0.50
0.77
1.46
2.34
2.55
5.35
6.05
6.92
Tax
0.14
0.21
0.21
0.25
0.64
0.73
1.86
1.76
1.97
2.28
Net profit
0.25
0.21
0.33
0.52
1.14
1.34
5.90
3.59
4.08
4.65
Adjusted EPS in
1.39
1.17
1.83
2.89
6.33
7.44
32.78
19.94
22.67
27.35
Dividend Payout
0.00%
28.57%
18.18%
17.31%
7.89%
6.72%
24.92%
40.95%
2.21%
1.94%

With zero debt, good reserves, consistent topline growth since last 10 ten years, great operating profit margins, consistent dividend paying record, Strong promoter holding of 65.44% and plans of merger with a reputed forging parent company, GAGL looks highly undervalued at a P/E of 10 as Bharat Gears is trading at a P/E of 85, Hi-Tech Gears is trading at P/E of 38, Shanthi Gears is trading at a P/E of 83 and only Raunaq Automotive like GAGL is trading at a P/E of 10, Whereas Raunaq Auto unlike GAGL has debt on the books and no dividend paying history, Gujarat Automotive Gears Ltd (GAGL) should command a P/E of atleast 20 which means the fair value minus growth should be around 600, And if you add the growth factors for future it should easily again be trading at 1000+ which it was trading at before the stock split.
 
As the above inputs have made it clear that GAGL is highly undervalued pick, Value investors should latch on to this remaining opportunity in an already expensive auto component sector where Indian companies are now ready to take on the Chinese with good technology and product pricing.

Note: Stock can hit upper circuit of 20%, Don't mind buying it at 20-30% higher levels.

134 comments:

  1. Published at 3:25:PM but due to spelling corrections blogger timestamp is showing 3:45:PM.

    ReplyDelete
    Replies
    1. Hi,
      I am Arrow coated products @528, would you please provide your suggestion for longterm. Ant target please. Please say about futures growth and management.

      Delete
    2. The Auto ancillary space will boom further and the make in india campaign will only contribute further

      Delete
  2. Can I know the reason y u posted at wee hours of market getting closed

    ReplyDelete
    Replies
    1. If we post before market it might hit upper circuit with too many buyers, denying anyone a chance to buy.

      We always inform when will our next post come, Posting in the last 10 minutes gives a chance to staunch followers to buy early.

      Monday anyway at upper-circuit investors can go for it.

      Delete
    2. because in India there are plenty of fools, these so called analysts first buy stocks for them at lower levels & then share with fools in the name of "free service for helping small investors"
      & make quick bucks (sometimes double in less then a month).
      They remind me of Akki of Phir Herapheri - 21 din me paisa double.....

      Delete
    3. I am not an analyst.. I am a small retail investor.

      If you think our picks dont have value, please stay away.

      Delete
    4. @Anonymous.. you are one of them who come here everytime and get benefited from such good picks and still criticize it. saale jis thaali mein khaate ho usi mein chedh karte ho

      Delete
  3. But don't u think because of this people will follow whatever u r posting blinding and the stock may appreciate just like that without studying about the stock.

    ReplyDelete
    Replies
    1. I trust people to study/believe the fundamental potential and buy, good stock deserves to rally, my job is to search for gems.

      Delete
    2. Frankly u r helping us make some quick bucks by this way. Else many good companies don't rally at all. They r struck like for example tata global bev one of them. Suggest more n rally more 😜👍

      Delete
    3. Sorry ashwin the concept is not quick bucks in short-term, these are long-term picks... Hold them!

      Delete
  4. Great fundamental pick Sir.. Hope to see a rally here from monday...

    ReplyDelete
  5. Hi Sir. I have bought Ybrant digital @ 51 rs. Please suggest should I hold? Many thanks in advance

    ReplyDelete
    Replies
    1. Thanks a lot sir. You are doing wonderful job, taking out time for research and then recommending stocks is not easy. Thank you again, will look forward to receive your calls.

      Delete
  6. Sir thank you for wonderful company from ocean. Sir i would like to know about your reco SKM eggs. Whether to add more at present level or what to do please suggest. thanks

    ReplyDelete
    Replies
    1. I think you have a good chunk.. Continue holding

      Delete
    2. Thanks for remembering me. Sir will continue to hold the same

      Delete
  7. SUPERB PICK
    VERY SMALL EQUITY OF 0.35 CR (LESS THEN 1 CR)
    AMAZING FIND
    LIKE TIDE WATER OIL HAVING EQUITY BELOW 1 CR....
    WILL BUY ON MONDAY
    ONCE AGAIN THANKS

    ReplyDelete
  8. Those who don't want to buy just stay away & gives us chance to buy this gem
    also don't try to be smart in shorting .....
    equity is too much low...
    thanks ace

    ReplyDelete
  9. Very good pick.. But after the stock split.. can we still ride on the wave.. Could not buy today.. will put on pre open session on monday thanks yaar.

    ReplyDelete
    Replies
    1. Yes you can buy, stock split doesn't change the business

      Delete
  10. Gr8 Pick once again ... Thank you sir for another gem :-)

    ReplyDelete
  11. Thanks Ace for recommending this great gem. Can you please tell how good to hold "Innoventive Industries". I see lot of volumes from last couple of days but price is not moving above 15-16. Should I buy more in dips.

    ReplyDelete
  12. Sir any development happened in Commex technology? i am holding 2000 shares, shall i add it more?

    ReplyDelete
  13. Seems the company is good with the results. But two questions I have after going through their latest annual report.
    1. Plan to tackle the slow sales in Europe: More frequent visits by MD to European countries.
    My question is how is this a strategy?
    2. Intercorporate deposit of 9Cr given to HIM Teknoforge, I believe owned by MD. This deposit is unsecured, but considered good by auditor.
    My question is isn't this transaction putting questions on their corporate governance.
    Thanks Ace Investor. Your posts are normally very detailed.

    ReplyDelete
    Replies
    1. 1- Not a great strategy.

      2- I also noticed it, but such transactions are usual, I don't think its a Corp. Governance Issue.

      Delete
  14. Sir any view abt Intellect design?
    After the demerger from Polaris, its looks interesting.
    Your view?

    ReplyDelete
  15. sir,

    your view on indian hume pipe ?

    ReplyDelete
  16. Sir, Ur view on Saurashtra cements and Veer energy?

    ReplyDelete
  17. Sir, Ur view on Cybertech systems and software?

    ReplyDelete
    Replies
    1. don't like cybertech, i like mindteck in small it space.

      Delete
  18. Dear ace, ur view on Waterbase Ltd and Dr. Datson labs?

    ReplyDelete
    Replies
    1. Waterbase good long-term prospects, Dr Datson no call, Corp governance issues.

      Delete
  19. What a Gem u shared this time, Its matching with all Parameters a Value Pick shud have like PE Ratio, DE Ratio, EPS, OPM etc. Thanks ACE for introducing such a wonderful PICK

    ReplyDelete
  20. Sir ur views on Lincoln pharma, nilkamal and intellect design areana. Thanks nirav karia

    ReplyDelete
    Replies
    1. like lincoln pharma, dislike nilkamal, yet to study intellect

      Delete
  21. Hi Ace,
    What's your view on Meghmani Organics Ltd?

    ReplyDelete
  22. sir ur views on Bodal chemicals?

    ReplyDelete
  23. Sir, ur view on Bharat seats?

    ReplyDelete
  24. Gujarat Auto available today in the range of 330 to 371... GO ahead and buy it if you are convinced with the value pick!

    ReplyDelete
  25. another awesome pick by the ace.....guys u rock keep this coming and help me to mint some good money thanks for your previous picks thanks....

    ReplyDelete
  26. great volume and move in the stock today, We can see sharper up-move tomorrow.
    Those who missed can enter tomorrow, expecting fast movement in this counter.

    ReplyDelete
  27. Hi, is it turaround story for Saurastra Cements, company reduced its debt drastically yoy? please research

    ReplyDelete
  28. Those who just argue still wait for 400 ....
    action speaks more then words....
    tomorrow more fireworks as sir mentioned
    superb pick
    once again
    Thanks

    ReplyDelete
  29. sir thanks for the excellent pick. whats are your views on ybrant, tanla, vidhi, skm, mic, magna electrocastings, kesar terminals, freshtrop fruits.

    ReplyDelete
    Replies
    1. among the names - ybrant,vidhi,skm are our picks, already posted on the blog.
      among others, like kesar terminals, freshtrop... rest not tracking or dislike.

      Delete
  30. GUJARAT AUTO MADE TWO ANNOUNCEMENTS TO THE EXCHANGE TODAY:

    1- SHAREHOLDING PATTERN FOR DEC QUARTER SHOWS THAT THE PROMOTERS HAVE INCREASED THEIR STAKE TO 67.11% V/S EARLIER PROMOTER HOLDING OF 65.44% IN SEP QUARTER.
    http://www.bseindia.com/xml-data/corpfiling/AttachLive/Gujarat_Automotive_Gears_Ltd_SHP_D14.pdf

    2- COMPANY HAS ANNOUNCED TO THE EXCHANGE AN GROWTH AND DEVELOPMENT PLAN VERIFIED BY THE MANAGING DIRECTOR, WHICH STATES THAT THE COMPANY HAS ADDED A CUSTOMER IN ITALY WHICH HAPPENS TO BE ONE OF THE LARGEST DISTRIBUTORS OF EUROPEAN TRUCK PARTS, EXPORTING TO EUROPE,RUSSIA,MIDDLE-EAST & AFRICA AND GAGL EXPECTS GOOD ADDITIONAL BUSINESS FROM THEM IN THE CURRENT CALENDAR YEAR

    IT ALSO STATES THAT GAGL HAS STARTED EXPORTING KING PIN SETS FOR TATA & LEYLAND IN SRI LANKAN MARKET IN ITS OWN BRAND AND EXPECT ADDITIONAL REVENUE OF 0.25 MN USD IN THE CURRENT CALENDAR YEAR, IT HAS ALSO LAUNCHED KING PIN SETS OF EXPORT QUALITY UNDER OWN BRAND FOR THE DOMESTIC MARKET OF TATA & LEYLAND VEHICLES, COMPANY EXPECTS TO GET GOOD SHARE OF THE DOMESTIC MARKET VERY FAST.

    http://www.bseindia.com/xml-data/corpfiling/AttachLive/Gujarat_Automotive_Gears_Ltd_130115.pdf

    ReplyDelete
    Replies
    1. very very positive news for GAGL. Wow sir thanks for update and will add more at present level. Sir i want to ask whether i can add vidhi at present level.

      Delete
  31. sir your view on vidhi dyes stuff your old reco. i want to add it iat current level. Whether i can do it or wait for results. From many days or say last one month the stock is trading around 18-20 level only. thanks

    ReplyDelete
    Replies
    1. VIDHI is good for long-term so is DYNEMIC in same field, you can divide in these two if you are targeting this sector.

      Delete
    2. sir i want to have one for one sector. Out of two which one you prefer to buy. Sir i am a small investor, hence i will put all my savings in the company opted by you. thanks

      Delete
    3. Difficult to chose between two diamonds, You can chose either of them.
      Never put all savings in one company, Divide money in 3-4 stocks/sectors.

      Delete
  32. Your view on Kabra Extrusion & Mirza International

    ReplyDelete
    Replies
    1. Technically mirza international has broken out above 50, do not strictly track it.
      Kabra no call.

      Delete
    2. Jayant, Mirza has reached 69... enjoy!

      Delete
    3. Yeah! I bought @ 34. I will book around 80-85. How you like it fundamentally

      Delete
    4. Don't know about the fundamental story, Technical breakout has worked.. Let's see if it can sustain this up-move, I feel 68 can be the next base for this stock.

      Delete
  33. Can you share your thoughts on NEOCORP International ?

    ReplyDelete
  34. How you look fluidomat as its balance sheet is getting stronger year by year? Need your valuable view?

    ReplyDelete
    Replies
    1. True but looking at the size of company it appears to be at fair valuations

      Delete
  35. sir, whats your view on polyplex?

    ReplyDelete
  36. sir what is your view on welspun syntex bought it today, i can hold it for 6 months..
    bought 120 shares today,planning to add more in sip mode

    ReplyDelete
  37. Kindly share yr inputs on tuni textiles

    ReplyDelete
    Replies
    1. Y r u aware of wats in store 4 tuni ? Or just giving fake calls

      Delete
    2. i didnt give any call, I am aware that its a punter counter.

      Delete
  38. dear ace 1000 target is possible in 6 months fo guj auto

    ReplyDelete
  39. Hi, ur view on Rajoo Engineers?

    ReplyDelete
  40. Hi Ace,
    When your next pick will come and why ybrant not moving up?

    ReplyDelete
    Replies
    1. studying 2-3 companies, will publish soon if convinced

      Delete
  41. Dear Sir are you tracking SAMKRG PISTONS & RINGS LTD ?

    ReplyDelete
  42. Hello Ace, Your view on Arrow Coated Products...?

    ReplyDelete
  43. Hi Ace,

    Please provide your valuable comments and any new and future developments in the following stocks :

    1. Mold Teck packaging : QIP issue as you had predicted

    2. Sunil hi tech

    3. Patels Airtemp

    4. Mindteck : Please if you could track this from IT sector.

    5. Gulshan Polyols :

    I would eagerly wait to get this posted and hear from you.

    ReplyDelete
    Replies
    1. 1)Already rallied
      2)not tracking
      3)not tracking
      4)Already gave a buy
      5)not tracking

      Delete
  44. When is ur next pick?

    ReplyDelete
  45. hello and very very good evening sir, kindly publish your pick after 1500 hrs. which can Avoid trap due to intraday trader. Rest all is fine. GOD BLESS YOU.

    ReplyDelete
    Replies
    1. We will post our pick on Thursday after 3:20 PM to keep followers safe from Intraday traders.

      Delete
  46. hi
    During mkt hours
    same as u do sir
    please inform
    thanks

    ReplyDelete
  47. Gujarat Automotive Gears Ltd. hit 20% upper circuit today at 414.70... Enjoy!

    As said short-term traders might have exited but the long-term investors remain the big winners.

    ReplyDelete
  48. Hi Ace

    Please share your views on Ybrant Digital?/// It is coming down and down after your recommendation? any thing serious in this stock or is it still a buy at this cmp or HOLD

    ReplyDelete
    Replies
    1. We posted at 53 today it is around 46 thats about 13% there is nothing wrong in the company so keep it on hold, fresh buying can also be done.

      Delete
    2. Thanx Ace for Quick responce on Ybrant

      Delete
  49. Hi Ace.
    But today Gujarat Automative Ltd closed at Rs 340.What is your comment.

    ReplyDelete
    Replies
    1. It showed its potential with the upper circuit, If you do not believe in the company never invest in it.

      Don't expect daily updates on every price movement as we are not traders but investors.

      Delete
  50. After merger will there be equity dilution? Will the earnings be consolidated with merged entity? How is the current earnings and debt position of him techno forge? Appreciate your view as merger is going to happen soon.

    ReplyDelete
    Replies
    1. Merger is not announced, we cant say it will happen soon.. The business vertical of guj automotive is enough to make it a compelling buy.

      Delete
    2. Thanks for your quick and prompt response. Yes merger is not announced yet but board meet on jan 30 is going to discuss on merger per bse release. Just curious to know the impact if it is announced. Thanks again.

      Delete
    3. I think they are still just looking at ways of merger or discussing, management is transparent and any such resolution for merger will be put at the board for shareholders approval.. So we all will know whats going on!

      Delete
  51. Hi ACE,
    Please can you give ranking among mold-tech packaging vs omkar speciality chemicals vs dynamic ind vs gujarat automotive. All are attractive, need guidance about how to distribute portfolio or keep/ remove stock from portfolio for very long term(10-15 yrs) perspecive(considering current price, future growth, company , industry, number of stocks, management). Since being small investor need to get it right in first attempt. Thank you..
    I think it can be like
    1-> omkar speciality ( due to IP filing) ... 75 %
    2-> gujarat auto (Less number of shares, great clients) / dynamic ind (Less number of shares, small mkt cap)... 12 %
    3-> Mold- Tech ( Already increased price (-ve), market leader , management ) ... 12 %

    Please point out if i am making any mistake..

    ReplyDelete
    Replies
    1. i rank Gujarat auto at the top as i am not tracking other companies mentioned by you anymore.

      Delete
  52. Wanted to know the financials of HIM especially EPS & share capital details

    ReplyDelete
    Replies
    1. Before the merger we all will know, The merger hasn't been decided yet.
      Waiting for tomorrow announcement on merger and results.

      Delete
  53. Pls comment on omnitech infosolution

    ReplyDelete
  54. some heavily selling in guj auto gears today? is shares changing hands to new promoter is open market? whats your opinion

    ReplyDelete
    Replies
    1. ex-promoter naresh kothari has been selling, and i believe it is the current promoter who is buying.
      Tomorrow company is having a board meet hope to see stellar results.

      Delete
  55. By seeing Gujarat Auto downtrend, I have started loosing faith in ACE

    ReplyDelete
    Replies
    1. Dear friend, guj auto went from 290 to 410 in less than a month after my post.
      Now it has come back to 290 and i think it is a strong-buy, Tomorrow after result will put up a detailed update on the call, Please do not follow me for 20-30% returns or for 10-15 days, I believe my stocks to do well in the long-term, The goal is to find hidden gem value picks not Intraday & Btst Calls.

      Delete
  56. My GOD, its a merger, its really very bad to see such things, you know it feels like some one paid you to write that beautiful peace of work. Have you not spoken to the management before writing it out. I guess there are prospects in the company like doubling the exports like the BSE notice today, but cant a merger make it some thing else?

    ReplyDelete
    Replies
    1. Lets all hope Results put an end to this long story...... GAG

      Delete
  57. Gujarat Auto Gears result is out... Topline and bottomline both have come down... EPS is down from Rs.6-7 to Rs.4.40. I feel it will crash on Monday morning....

    ReplyDelete
    Replies
    1. Results disappointing, Will speak with the management tomorrow and post a detailed review.

      Delete
  58. What after the result? The stock never really moved up or down just gave a 11th hour upswing. Results disappointing, just high hopes for next quarter.

    ReplyDelete
  59. Hi Ace

    Please can you share your rationale as to why Meghmani Organics Ltd is an 'avoid' as far as your recommendation. Have invested some amount in this stock based on recommendations from other brokerages.
    Personally, I like your blog and reasoning included on value picks.. as it is easy to consume.

    Many thanks.

    ReplyDelete
    Replies
    1. I am not interested in the sector of pigments

      Delete
    2. I understand that it is a personal preference. But can you elaborate a little as to why you do not like pigments sector - risks/ issues that you are wary of.

      Based on research reports my understanding is that they are into pugments/ agrochemicals/ basic chemicals. And infact I was thinking they could be suppliers to Vidhi Dyes and Dynemic Products or such like companies.

      Please correct me if I am wrong.

      Thanks.

      Delete
    3. I don't think they are supplying to food color companies, the prices of other types of dye and color has been correcting and that should have a impact on its earnings.

      Till i don't have a crystal clear positive view on a stock and a sector i usually do not bet on it.

      Delete
  60. Please share views on FRESHTROP FRUITS bse code 530077 @162 whether i can invest in the stock?Is it good to invest in ?thanks.

    ReplyDelete
  61. sir please guide the old share holders of guj auto motive ; should we hold on sell or add more

    ReplyDelete
  62. so bad on your part mr ace investor ; i have been asking for so long what to do with is stock bought at an average of 250 for the last one year ; and you are busy in giving new recomendations ; what to do with this stock right now

    ReplyDelete