GNA Axles' niche player tag, immunity from EV disruption give it an edge

Nitin Agrawal Moneycontrol Research

GNA Axles is a niche player in the auto-component segment with a strong brand, long-term relationship with clients, and strong financials. With the leadership position in the domestic market and significant presence in leading economies coupled with positive industry outlook and reasonable valuations, the company merits investors' attention.

The business – a niche player GNA operates in a niche segment of the auto ancillary industry and is a leading manufacturer of rear axle shafts, spindles and splined shafts, which find applications in light & heavy commercial vehicles and off-highway vehicles. These products also find applications with other speciality vehicles used for mining and defence.

Due to the niche segment, GNA has very limited competition in the same product range. This has led the company to continuously gain market share and currently has a domestic market share of around 60-65 percent.

We like the following about the company

Strong brand – long-term relationship with clients The company has a strong brand as is evident in the long-term relationships with its customers. Mahindra & Mahindra has been its customer since 1995. Automotive Axle, TAFE, John Deere, Dana India, Bharat Benz have also been its domestic clients for long. Apart from that, the company has been supplying to its global customers for over a decade.

Strong presence in export markets The company started exporting its products in 2002 and since then it has been gaining market share in the leading economies. GNA’s ability to scale up production coupled with adhering to stringent quality norms and meeting stringent deadlines have helped in gaining significant share in export markets. Exports contributed 48 percent of the total revenues in FY17 and achieved 19 percent growth in export revenues compounded annually over FY13-17.

State-of-the-art manufacturing facilities GNA has two state-of-the-art manufacturing facilities in Punjab with a total annual capacity of 2.30 million rear axle shafts, 0.40 million other shafts and 0.30 million spindles as of FY17. The manufacturing facilities include machinery imported from various countries including Italy, Germany, Japan, China and Taiwan, used for various processes to manufacture the final product. The company’s machinery enables it to manufacture rear axle shafts up to input weight of 165 kg.

Capacity expansion GNA has earmarked Rs 90-100 crore for the capacity expansion from 3 million units to 4 million units in the next two years. The management is confident of funding this through IPO proceeds and internal accruals.

Ownership – lends comfort Even after the sale of shares by one of the promoters, the total promoter holding is still above a healthy level of 65 percent. Leading mutual funds also have invested in the company. HDFC’s two funds hold around 4.79 percent and UTI’s two funds hold 2.9 percent of the total shares as of September 2017.

Strong outlook On the global front, there is a significant pickup in heavy trucks demand compared to last year on the back of stronger freight growth in the US. The heavy truck sales witnessed a growth of 33 percent over April to October 2017 which has started propelling the growth for the company. Also, the continued renewal and expansion of fleet along with a strong freight environment is supporting demand for trucks in Europe.