Buy GNA Axles; target of Rs 376: Centrum

Centrum's research report on GNA Axles

GNA Axles Ltd (GNA), established in 1993, is one of the leading manufacturers of rear axle shafts used in on-highway and off-highway vehicular segments in India. GNA’s major customer include Original Equipment Manufacturers (OEMs) like M&M, John Deere, TAFE and tier-1 suppliers to OEMs like Automotive Axles Ltd, Meritor HVS AB and Dana Ltd. GNA is well diversified with India accounting for 54% of FY17 revenue, North America (15%), Europe (21%), South America (4%) and RoW (6%). It has 2 manufacturing plants in Punjab, with capacity of manufacturing 23 lakh rear axle shafts (capacity utilization 78% for FY17), 3 lakh spindles (73%) and 4 lakh other/drive shafts (85%) per annum.

Outlook

GNA is a leading player in automotive axle space having exposure both in domestic and international market with few of the large OEMs and Tier-1 clientele. It is expected to gain significantly on account of CV cycle recovery (both domestic and export markets) and bounce back in tractor sales. Currently, the stock is trading at 15.6x P/E and 6.6x EV/E on FY19E basis. We initiate coverage with a Buy rating and target price of Rs376 valuing it at 18x FY19E EPS.

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