Recommendation from Auto Ancillaries - Others Sector

This column gives you 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 : FULLY CHARGED TO TAP FUTURE POTENTIAL

HERE IS WHY
✓   Established market position
✓   Diversified product portfolio
✓   Key end-user industry applications

India has become one of the fastest-growing major economies 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 automobile industry. As a result of this acceleration in the automotive sector, India’s automotive component industry is an important sector that will continue to grow.

In fact, the automotive components industry accounted for 2.3 per cent of India’s GDP. By 2026, the automobile component sector is expected to contribute 5-7 per cent of India’s GDP. The industry is expected to stand at USD 200 billion by FY26. We are therefore picking out Banco Products (India) Limited, a prominent player in the automotive components industry. The company specialises in the production of engine cooling and sealing systems.

With a strong presence in both the automotive and industrial sectors, Banco Products has earned a reputation for excellence. 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 bothcopper brass and aluminium variants.

In Q1FY25, on a consolidated basis, the revenue of the company increased by 7.54 per cent YoY to ₹797.32 crore compared to ₹741.40 crore from the previous year’s same quarter. On a sequential basis, its revenue increased by 11.14 per cent. The PBIDT excluding other income increased by 37.31 per cent to ₹132.83 crore YoY as compared to ₹96.74 crore from the previous year’s same quarter, while sequentially increasing by 16.47 per cent. The PAT stood at ₹68.67 crore compared to ₹68.81 crore, a YoY decrease of 0.20 per cent, while sequentially increasing by 0.75 per cent from ₹68.16 crore. Geographically, 37.4 per cent of the revenue is generated from India for the company, while the remaining 62.6 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.

The development of electric vehicles (EVs) in India is picking up and cooling systems do play a central role in EVs. As such, a strategy to capture the market in various projects in the EV segment is in a development stage. Banco New Energy Cooling Systems Limited, a wholly owned subsidiary of Banco Products, is in the final stages of plant commission and product trials.

The company has achieved the status of an established supplier with various multinational OEMs in advanced markets. Additionally, the company has built an extensive network of dealers throughout India, enabling it to meet the increasing service demand in the automotive aftermarket. The company has secured clients such as Ashok Leyland, TATA, Eicher, Force, Godrej, Harley Davidson, Mitsubishi, Mahindra, TVS, John Deere, and many more.

Banco Products’ main strengths lie in its established market position, diversified product portfolio, key end-user industry applications, and low customer concentration risk. The company is currently trading at a PE of 17.5x as against the industry PE of 35.3x. In the last three years the company has delivered average ROE of 22.6 per cent and ROCE of 25.3 per cent. Taking into account the company’s business and its market, we recommend BUY.