Saturday, June 5, 2010

Stock Idea: Federal Mogul Goetze (India)

Federal Mogul Goetze (India) (Rs 112)
(Bse Code- 505744 Nse Code- Fmgoetze)
(P/E- 10, Promoter’s Stake-74.98%, Equity- 55.63 Cr., Market Cap- 623 Cr.)
Goetze (India) Limited was established in 1954 as a joint venture with Goetze-Werke of Germany. Goetze-Werke of Germany is now owned by Federal-Mogul Corporation, a $6.3 billion global company and one of the leading manufacturers of automotive components in the world. In 2006, US-based Federal-Mogul acquired the Indian promoters’ stake, raising its holding to 50.11%, to take control of the company after which the name of the company changed to "Federal-Mogul Goetze (India) Limited"(FMG). Federal Mogul, one of the promoters of Goetze (India) and a US auto-parts major acquired 62,30,000 equity shares of the company at Rs 222.50 per share, constituting 24.64% of the equity share capital. There was rights issue in 2008 at Rs.56 per share, which did not get adequate response from the investors and promoters subscribed to the Shares and increased their holding to 74.98%. FMG has a paid-up equity capital Rs 55.63 cr. of which promoters hold 74.98%., FII/MF’s hold 12.07%, Bodies corporate hold 3.24% and Public holds 9.71%
FMG is the largest manufacturer of pistons and piston rings in India. The parent Federal-Mogul is a leading auto-ancillary company with a very strong presence in the diesel vehicles segment. FMG is involved in the manufacture of auto components like pistons, piston rings, sintered parts and cylinder liners covering a wide range of applications including two/three-wheelers, cars, SUVs, tractors, light commercial vehicles, heavy commercial vehicles, stationary engines and high output locomotive diesel engines. FMG has 4 manufacturing facilities at Bengaluru (Karnataka), Parwanoo (Himachal), Bhiwadi (Haryana) and Patiala (Punjab) and 22 pan India marketing offices. It makes the widest range of piston rings and pistons varying from 30mm to 300mm diameter. It also manufacturers sintered parts light metal castings and cylinder liners covering a wide range of applications including two/three-wheelers, cars, SUVs, tractors, light commercial vehicles, heavy commercial vehicles, stationary engines and high output locomotive diesel engines. It is market leaders both in OEM and aftermarket. Besides, about 10% of its business is from exports. Within the original equipment manufacturing (OEM) segment, FMG’s revenues are spread across all auto players including Tata Motors, M&M, Bajaj Auto and TVS. There are also expectations that the US based auto parts major parent may use FMG as an outsourcing hub.
For the Q1 ended March 2010, FMG has posted 31% rise in net sales to Rs 209.1 cr. whereas net profit increased 29% to Rs 11.35 cr. on standalone basis. For the year ended December 2009, FMG had posted net sales of Rs 785.32 cr. and net profit of Rs 54.52 cr. on consolidated basis. On a equity of 55.63 cr. the EPS stood at Rs 9.8. For the year ended December 2008, FMG had posted net sales of Rs 706.6 cr. and net loss of Rs 6.89 cr. The Indian automobile industry is on fast revival after tough period. 2-Wheelers and passenger cars sales are already in “Topgear”. With confidence returning in economy, CV and Capital goods sales are likely to see upward trend after almost 2 years of slow down. Increased focus on rural economy can boost tractors sales in a big way. Going forward, FMG is expanding its capacity, by installing a new plant at Chennai, which is likely to begin operations next year. At CMP of Rs 112, the FMG stock trades at 11.4 times CY09 earnings (Rs 9.8) and at 9.3 times expected CY10 earnings(Rs 12), which is attractive for a company that is the biggest player in its line of business. From Rs 449 on 5 January 2007, the scrip tumbled to Rs 28 by 9 March 2009. In view of the improved results, strong parent and good medium term prospects, Investors can start accumulating the stock at current levels and add more on declines for decent returns of 45%-50% over the next 8-12 months.
Source: Internet (Valuenotes by Sanjay Chhabria)

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