Recommendation from Auto Ancillaries sector

This column gives you a scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

BANCO PRODUCTS (INDIA) LIMITED: A STEP AHEAD

HERE IS WHY

✓ Leading player in component space
✓ State-of-the-art technology
✓ Impressive client roster

India has become the fastest growing major economy in the world in recent years. This fast growth, coupled with rising incomes, a boost in infrastructure spending and increased manufacturing incentives, has accelerated the demand for automobile industry products. The fallout of this pace is that there is also an increase in demand for automotive components. By 2026, the automobile component sector is expected to contribute 5-7 per cent of India’s GDP. [EasyDNNnews:PaidContentStart]

One company that must be taken note of in this space of automotive components is Banco Products (India) Limited. It is a prominent player in the automotive components industry, specialising in the production of engine cooling and sealing systems. The company manufactures a range of engine cooling modules, including radiators, charged air coolers, fuel coolers, oil coolers and condensers. These modules are available in both copper brass and aluminium variants. Banco Products has a portfolio of products that find applications in various vehicles and equipment. The company has a Department of Scientific and Industrial Research (DSIR)-approved research and development facilitywherein new products are developed in consultation with various OEMs.

Its technical capability enables the group to work with OEMs to develop customised products too in accordance with the design and technical requirements of the clients. This arrangement gives a competitive edge to BPIL over many other automotive ancillary manufacturers. The company has successfully developed advanced solutions to meet the requirements of contemporary emission norms such asBS VI for automotive vehicles, BS-IV and Trem V for agriculture machinery and off-highway equipment and new CPCB 4 norms for power generation equipment. The company has secured clients such as Ashok Leyland, Tata Motors, Eicher Motors, Force Motors and many more. 

In Q4FY23, on a consolidated basis the company’s net revenue grew 20.71 per cent YoY to ₹602.36 crore from ₹499 crore in the corresponding quarter last year. The PAT increased by 26.97 per cent YoY from ₹40.19 crore to ₹51.03 crore. The revenue mix of the company in FY20 comprised 86 per cent from aluminium radiators and 14 per cent from copper brass radiators. Geographically, 33.2 per cent of the revenue is generated from India while the remaining 66.68 per cent comes from the rest of the world. 

The company supplies over 65 per cent of its products to large OEMs and 15 per cent to aftermarket sales. With five manufacturing facilities, Banco Products has the capacity to produce 3.33 million radiators annually as of FY22. The company has established collaborations with leading distribution houses to effectively market its products on a global scale. Additionally, the company has built an extensive network of dealers throughout India, enabling it to meet the increasing service demand in the automotive aftermarket. Banco Products continuously expands its product range to cater to evolving market needs and enhances its brand presence through service and marketing campaigns. The company is currently trading at a PE of 8.07 times as against the industry PE of 24.7 times. The best part is the company’s dividend yield of around 8 per cent. Taking into account the company’s business and its market along with attractive valuation, we recommend BUY.

[EasyDNNnews:PaidContentEnd] [EasyDNNnews:UnPaidContentStart]

[EasyDNNnews:UnPaidContentEnd]