The company has been outperforming the two-wheeler industry growth owing to higher share of non-auto verticals and adding new customers and new products in the auto sector to offset volume cyclicality of the two-wheeler industry.
The company’s products are powertrain agnostic. This would help to sustain orders from internal combustion engine vehicles as well as incremental orders for electric vehicles at a superior realisation. Realisation of the electric two-wheeler is nearly 50-60% higher than EV vehicles for the company. The current realisation on ICE vehicles for the company is about ₹750 per vehicle. The company’s asset turnover is one of the highest in the industry. Given these factors, long-term investors may consider the company’s IPO.
Business model
The company is the largest manufacturer of advanced braking systems for two-wheelers with a market share of more than 50%. It has a portfolio of 52 proprietary formulations for making braking systems.
It supplies products to companies such as Hero Motocorp, Honda Motorcycle & Scooter, TVS Motor, Suzuki, Bajaj Auto and Royal Enfield. It is increasing exposure to advanced light weighting solutions using aluminium, which is 40% lighter than steel. This has helped boost demand, from EV companies. The company supplies parts to all leading electric two-wheeler companies. Braking systems and advanced light weighting account for 42% and 39% of the revenue. The balance of revenue comes from verticals such as wheel assembly and safety control cable.
Financials
Revenue grew 29% annually between FY21 and FY23 to ₹2,555 crore, while operating profit rose 8.4% on a CAGR basis to ₹247 crore, implying a margin of 9.6%. Net profit expanded at 7.5% CAGR to ₹122.9 crore between FY21 and FY23. In Q1 of FY24, it had revenue of ₹64.7 crore with an operating margin of 9.9% and profit of ₹34.8 crore.Risks
The company has high reliance on the two-wheeler industry with revenue contribution of more than 90%. The top three customers account for two-thirds of the total revenue. Mmoderation in two-wheelers may weigh on performance.
Valuation
At the higher end of price-band, the company is demanding 39 times of its annualised earnings of Q1 of FY24. Peers such as Endurance Technologies, Minda Corporation, Uno Minda and Bharat Forge are trading between 25-59 times. It has superior RoCE (22%) and asset turnover (2.14) than peers owing to better production efficiencies and higher sweating of its assets.
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