Hi-Tech Gears - Latin Manharlal Securities Pvt Ltd

Incorporated in 1986, Hi-Tech Gears Ltd (HGL) is a part of HI-TECH Group and is in the business of manufacturing transmission related auto components such as Gears, Shafts, Flanges for 2-Wheelers, 4-Wheelers and engines, in addition to Precision forgings.

Strong strategic alliances and technical tie-ups

HGL Group has strategic alliances and technical tie-ups with M/s Mushashi Auto Parts Ltd, Japan (a subsidiary of Honda Motor Co.) and Getrag Corporation, USA for supplying components to OEMs worldwide. HGL has tied up with Kyushu Musashi to manufacture closed-die forgings in India. This particular product is a raw material for transmission gears and shafts.

Key beneficiary of the sustained growth in the automobile segment

HGL manufactures transmission related auto components such as Gears, Shafts, Flanges for 2-Wheelers and 4-Wheelers engines especially in diesel engines. The company has been servicing diverse clients across the globe for engine and transmission components produced to the most exacting standards. HGL supplies gears and turned blanks for all models of Hero MotoCorp, its biggest customer (~60% of revenue contribution).

New Unit to start contributing to revenue from FY13E

HGL which continues to focus on future technologies and sustainable manufacturing has set up another state of the art plant, near the mother plant in Bhiwadi, Rajasthan which is expected to be functional at its full capacity during FY13E. The new unit will commence the commercial production of transmission auto components for commercial vehicles (CVs) as well as passenger vehicles.

T&EC business to augur well on the back of growing demand for diesel engines

Transmission & Engine Components (T&EC) is one of the business vertical that contributes ~15% of HGL' business. The company manufactures primarily timing gears for diesel engines for light, medium & heavy commercial / off-highway vehicles and transmission gears & shafts for 4-Wheeler vehicles and other applications.

Diversified Clientele base

HGL supplies the products to well known customers Hero Honda, Cummins, Cater Pillar, Bosch, New Holland, Honda, Lister Petter etc covering Asia, Europe, North America and South America continents.

Strong Financial Performance over the years

- Revenue CAGR of 12% over FY07-11
- EBITDA CAGR of 24% over FY07-11
- Net Profit CABGR of 43% over FY07-11
- Consistent in dividend payment since FY1997 and also declared Bonus (1:1 ratio) 3 times in past (FY2000, FY2005, FY2010)
- Average Dividend payout is ~32% over FY1997-2011

At the CMP of Rs.139.0, the stock is trading at 5.4x its FY13E EPS of Rs.25.61. We recommend BUY on the stock with a 12-18 months target price of Rs.204, providing an upside of 47% from the current levels.

Source : Equity Bulls

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