Book Full Profit - ZF Steering (India)

ZF Steering (India) (ZFS) was a part of our recommendations in Issue 16 dated July 19-August 1, 2010. The company was suggested as ‘choice scrip’ at the price of Rs 328 with a one-year target price of Rs. 410, indicating an upside of 25 per cent. Interestingly, since then the scrip has outperformed our expectations and indeed provided very handsome returns within just two months. The scrip at its new high of Rs 519 has yielded an overall appreciation of 58 per cent and with its CMP of Rs 482.15 the current gain is of 47 per cent. The Sensex during the same period has gone up by just 12 per cent.

ZFS is basically an auto ancillary player and manufactures power and mechanical steering systems, catering to the commercial vehicle segment. About 85 per cent of its revenue is from power steering systems while the balance 15 per cent is derived from mechanical steering systems. Factors such as a sharp bounce-back by the auto sector (especially the commercial vehicle segment that has created an incremental demand for auto ancillary products), enviable clientele list, capacity expansion, its base at Pune which is a major auto hub, liquidity of Rs 106.37 per share, almost zero-debt status, increasing margins, and very low valuations made us recommend ZFS to our readers. Looking at the way the scrip has performed over a short duration it makes sense to book full profit at this stage.