Couched In Comfort - Bharat Seats

Bharat Seats (BSL) formed a part of our recommendations in Issue 16 dated July 21-August 3, 2008 in the Low Price Scrip column. The counter was recommended at a price of Rs 10.50 (face value Rs 2). The reason why we recommended Bharat Seats was simple. The company, which manufactures seats, was promoted by Rohit Relan & Associates and co-promoted by Maruti Suzuki India and its parent company Suzuki Motor Company of Japan. These two Suzuki companies together hold 29.62 per cent in Bharat Seats. Maruti Suzuki absorbed the entire production of Bharat Seats and hence our basic rationale was that if Maruti Suzuki grew in the coming quarter, Bharat Seats would grow too.

Besides, the other advantage was that BSL was developing newer seats for Maruti Suzuki’s fresh models and considering the fact that Maruti Suzuki’s new models have always gained good market acceptance, BSL was bound to do well. That apart, financial parameters such as very low debt to equity ratio, very low valuations, consistent dividend, higher dividend yield and the fact that this could be more of a contra bet made this counter even more attractive for recommendation.

This counter, post our recommendation did go to Rs 13.77 providing for a 31 per cent appreciation but has slipped since then in the market aftermath and is currently trading at Rs 6.45, down 38.57 per cent over its recommended price. Besides, BSL also hasn’t performed well in H1FY09 where increased input cost has hit its profits and margins. However, investors can still hold on to this counter rather than booking losses. With the commodity prices softening globally, the input cost would also reduce accordingly for BSL as well help it regain its margins, while with Maruti Suzuki getting aggressive on new launches it could continue to bring in new business for BSL. Hence one can hold the scrip.