Accumulate HiTech Gears; target of Rs 150: Sushil Finance

“HiTech Gears (HGL) is engaged in manufacturing of transmission gears, timing gears, shafts (Two and Four Wheelers), precision forging and machining and power take off units. HGL has manufacturing facilities located at Manesar, Gurgaon district of Haryana and Bhiwadi in Rajasthan. HGL has technical tie up with Kyushu Musashi (Japan), a subsidiary of Honda Motors and technology agreement with Getrag Corporation.”

“HGL’s prime customer has been Hero Honda Ltd. HGL is now diversifying its customer base and has added many OEM’s in its customer base. HGL has added Tata Cummins, JCB, Daimler and few others to its customer portfolio and is reducing dependence on Hero Honda. Currently Hero Honda contributes approximately 60.0% of HGL’s total sales. Going forward we expect Hero Honda’s Share to decline to approximately 55.0% with addition of newer customers and increase in exports.”

“HGL was incorporated in 1986 and is primarily engaged in the business of gears and transmission components. Its products include Timings Gears, Transmission Gears and Shafts, Precision Forging and Machining and Power takeoff units. It is setting up a new manufacturing unit at Bhiwadi in Rajasthan which would allow it to cater to rising demand. It expects to incur Rs 500 million for the set up of the new plant. During last two quarters HGL’s margins have improved substantially due to internal cost cutting measures. The improved margins are expected to sustain in future. In FY10, HGL’s revenues increased 9.5% YoY and APAT grew by 115.5% YoY with EPS of Rs 9.5 (Adjusted for Bonus of 1:1 to make it comparable). Going forward, we expect its Revenues and APAT to grow by 27.3% & 75.8% respectively in FY11E; and by 20.0% & 28.8% respectively in FY12E. At CMP of Rs 120, the stock is available at an attractive valuation of 5.6x its FY12E earnings of Rs 21.5. We recommend investors to Accumulate the stock for target price of Rs 150 (7.0x FY12E Earnings),” says Sushil Finance research report.

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