Rane Brake Linings
BSE Code: 532987
CMP: Rs.110.80
EPS; Rs.14.14
P/E: 7.84
Industry P/E: 23.63
Dividend: 20%
Market Cap: Rs.87.7
Shareholding Pattern: The promoters hold 62.01 % while the general public holds 37.99%. Among the general public DIIs hold 9.76% of the shares of the company.
Financials: For Q3FY10, the company came out with very good numbers. The total income of the company came out to be Rs.60.04 Cr as against Rs.42.84 Cr in the same period previous year. The net profit of the company came out to be Rs.3.11 Cr as against a loss of Rs.1.82 Cr in the same period previous year. The EPS of the company for Q3FY10 came out to be Rs.3.93 as against (-) Rs.2.52 in the same period previous year.
Triggers:
- In Q3FY10, the company achieved a significant growth of 102% in the domestic OE market and 28% growth in domestic replacement market. Few new OE business acquisitions and introduction of few low cost models in the domestic Replacement market was also done in Q3FY10.
- In future the company hopes to get good growth in sales. It will continue with its focus on Cost Management initiatives (like lean factory management and TPM) and efficient working capital management. The low interest rate environment is already working wonders for the company.
- Last year (Q1FY10) the new state of the art plant at Trichy, Tamil Nadu commenced production and is now working at 90% of its phase I capacity. The state of the art plant is expected to play a significant role in the coming years in improving the sales revenue and profitability of your Company.
- The company last year started to supply brake linings to Mahindra Navistar, GM Tavera and MSIL Ritz. Supplies of asbestos free brake linings to Tata Motors for their commercial vehicle segments are likely to grow in future. The company is presently implementing some export orders for Egypt.
- Nisshibo Brake Inc (NISB) who has been the technology partners of the company since 1996 have increased their shareholding to 20%. This will help the company in further advancement of research and development to meet the new technology requirements of the future. Indian automotive industry is dominated by Japanese and Korean auto manufacturers. The increased co-operation with Nissihinbo Group will not only serve the Japanese and Korean manufacturers but also other European and domestic car companies in India. The technical inputs and greater co-operation from Nissinbo Group would thus be beneficial to the Company in terms of business potential and customer relationship.
- The continuance of global majors in USA and Europe showing keen interest in sourcing auto components from India based on cost and quality, presents an opportunity for the company to grow its exports market further.
- The company hopes to ride on the recovery in the domestic market while consolidating its operations. It has already taken a couple of initiatives to sharpen its cost competitiveness. The company hopes to do better in the following quarters due to expected less volatility in the commodity prices.
- The company could review its plans for setting up an assembly, finishing and delivery facility at Sanand, Gujarat for supplying components for Tata Motor’s “Nano”.
- It has Green Material Policy to ensure products meet stringent eco norms. Its design centre has Computer Aided Design (CAD) and sophisticated test equipment like full-scale inertia dynamometer, thermo gravimetric analyzer, pyrolysis gas chromatograph, etc.
- The company is already supplying friction material brakes to armoured vehicles and tanks. The company is exploring synergistic opportunities in Railways, aerospace, power, etc.
Rane Brake Linings Ltd (RBL) and its shareholders will stand benefitted by RBL becoming a subsidiary of Rane Holdings Ltd. (RHL). RBL as a subsidiary is having closer association and greater backing of RHL.
Caution:
- Further slow down in the domestic economy.
- Slow recovery of Commercial Vehicles segment in India.
- Worsening of global recession especially in US and Europe adversely affecting export market.
- Competition from the MNCs who are setting up production facilities in India.
- Volatility in Commodities and Foreign exchange rates.
Conclusion: The Rane Group will now manufacture in-house those components that were earlier being imported from Japan. This is indeed an encouraging development. Moreover the continuance of the low interest regime is also positive for the company.
From the charts it has been found that most of the parameters are in buy mode. The stock could be purchased above Rs.106, for an immediate target of Rs.115—125. In the long term the stock could reach Rs.170—200.
Note: The stock was recommended to the Paid Groups on 14-03-2010, as Pick of the Week.