Saturday, June 5, 2010

Stock Idea: Rane Madras

Rane Madras (Rs 89)
(Bse Code- 532661 Nse Code- Rml)
(P/E- 6.5, Dividend Yield-5%, Fy10 Sales-415 Cr., Market Cap- 90 Cr.)
Rane Madras (RML), the flagship company of the Rane Group, is a leading manufacturer of automotive components like steering linkages, ball joints, axial joints, suspension joints and manual steering gears. RML, established in 1960, operates in two business segments - steering & suspension linkage products and manual steering gear products. RML’s principal activity is to manufacture components for transportation industry. It manufactures the components for passenger cars, utility vehicles, small commercial vehicles, light commercial vehicles, medium and heavy commercial vehicles, three wheelers, two wheelers and farm tractors. The Company has high standards of manufacturing, which gives it an edge over its competitors. It has five manufacturing plants, one each in Chennai, Kanchipuram, Mysore, Uttarakhand and Pondicherry, with a combined capacity of 10.5 million units for linkage products and 0.6 million units for steering gears. It has a technical collaboration with TRW Inc, USA for linkage products. RML has 20 overseas customers most of them OEM’s including names such as Chrysler.
Subsequent to the restructuring exercise in 2005, RML has positioned itself as a steering gears & linkages company. Earlier, it used to manufacture both, steering linkages and steering columns. RML derives 74% of its revenues from domestic OEMs, 15% from exports and 11% from the replacement market. RML’s key customers in the domestic market include Tata Motors, Ashok Leyland and M&M. RML also exports manual steering gears to Iran for the Kia-Pride platform. RML’s exports to TRW, its technology partner, account for 75% of its total exports. Sustained spending on infrastructure and continued thrust on agriculture are the beneficial factors that would aid LCVs, PVs and tractors. This is turn is expected to result in larger volumes for RML that would result in growth in margins and profits. RML is the supplier of steering components to Tata ACE – a mini truck with sub-one tonne capacity. Tata ACE was launched by Tata Motors in FY06 and has received tremendous response in the market.
For the nine months ended Dec. 2009, RML has posted net profit of Rs 8.8 cr. on net sales of Rs 300 cr.. The company also declared an interim dividend of 25% after the Q3 results. For the year ended March 2010, RML’s figures were net sales of Rs 415 cr.(up 20%) and net profit of Rs 13.8 cr.(against loss of 36 lakhs in FY09). The FY10 EPS is Rs 13.6 on a equity of 10.16 cr.(Promoters’ stake-55%) and a final dividend of 20% has been declared making the total dividend for FY10 at 45%(Rs 4.5 per share) RML has reduced its dependence on manual steering gears. It has shifted focus to Linkage products that are used both in manual and power steerings. Going forward, this ratio will tilt in favour of Linkages and this change in the product mix will improve the Margins. RML is a leading player in the manual steering and linkage products, in the domestic market, with more than 50% market share. With the strong growth momentum in its key customer segments, the Company stands to benefit. At the current market price of Rs 89, the stock is available at PE of 6.5x its FY10 of (Rs 13.6). Investors can start accumulating the stock at current levels and add more on declines for decent returns of 40%-45% over the next 8-10 months. Accumulate
Source: Internet (Valuenotes by Sanjay Chhabria)

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