Stock Picks: The Hi-Tech Gears

The Hi-Tech Gears is primarily a gear and transmission components manufacturer and supplier. Its products include transmission gears, timing gears, shafts and precision forging. It currently has 5 manufacturing units.

Key Facts:
– Technical tie-ups with Honda, Japan and Getrag, US
– Significant entry barrier due to its technology tie-ups, experience and clients
– Supply to OEM 2-wheelers, trucks, tractors and off-road vehicles
– Low cost producer
– Entered industrial and defence robotics business – received one patent, 12 patents pending
– 30% of its revenue come from exports

Clients:
– Top clients include Hero, Tata Cummins, JCB, Daimler, Honda, Bosch and Wabco
– Preferred supplier to Hero MotoCorp
– Global supplier to Cummins US and Robert Bosch
– Produce precision components for Robert Bosch and Volvo

Management:
– Good management
– 3x earnings growth in the last 10 years
– Growth rate is better than industry average
– Consistent dividend payout
– Expanded its client base and product range

Opportunity Size:
– India to emerge as the destination of choice for auto components
– Indian auto component local market is expected to double to $115 billion by 2020
– Indian auto component export market is expected to increase 4x to $40 billion by 2020
– Post GST, replacement market size is expected to increase 4x of OEM market size

Investors:
– Veteran Investor Nemish Shah owns 7% of the company and his average buy price was Rs 265

Risks:
– High client concentration (Hero account for 50% of its revenue)
– Cyclical business

Valuation:
At current price of Rs 280, the rate of return is 10.5% based on pre-tax earnings to market cap and the dividend yield is 1%.

Appendix:
Competition – Shivam Autotech. Read more: [Economic Times]
Make in India – Auto Components. Read mode: [Make in India]
Factory Tour. Watch video: [Hi-Tech Gears]

Disclaimer:
MyValuePicks is not a registered investment advisor or broker. Readers are advised that the material contained herein should be used solely for informational purposes. MyValuePicks does not accept responsibility for consequences of financial decisions taken by users on the basis of information provided herein. The aim is to provide a reasonably accurate picture of financial and related opportunities based on information available with us.

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