Geared For Growth - Bharat Gears

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Bharat Gears formed a part of our recommendations in the Low Price column in Issue No 13 dated June 9, 2008 and was recommended at Rs 42. Post our recommendation the counter did go up and touched Rs 54, giving an appreciation of 28.57 per cent, but since then has declined on the bourses. Currently it is trading at Rs 30, down 28.57 per cent over its recommended price of Rs 42.

There were various reasons for which we had recommended Bharat Gears. The company has been performing consistently in terms of topline as well as bottomline growth. Besides, BGL is one of the largest manufacturers of crown wheel gear sets in India where it commands a market share of a whopping 70 per cent. Its product finds an application in heavy, medium and light duty trucks, buses, tractors, passenger cars and utility vehicles with clientele such as Mahindra & Mahindra, Tata Motors, Ashok Leyland, Bajaj Auto, Hero Motors, BEML, JCB, Eeaton of USA, John Deere of New Holland, etc.

Besides, with a planned capex of Rs 41.7 crore and initiatives aimed at interest cost reduction the valuations made this counter even more attractive. In Q2FY09 BGL’s topline grew 21.55 per cent to Rs 70.65 crore (Rs 58.12 crore), while the bottomline increased 121 per cent to Rs 2.90 crore (Rs 1.31 crore). In fact, BGL continues to reduce its interest cost by retiring its debts. In Q2FY09 this cost has declined by 9.34 per cent, which has helped in pushing the profit growth further. At a market cap of just Rs 24 crore, the company is up for grabs considering the fact that its market cap to sales is just 0.10x. Hence, investors can still hold or even accumulate at these levels with a long term perspective.