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The Midcap Play

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Valuation are an attractive play for an investor, 2017 has been a dream run for the midcap stocks the stocks turned out to multi-bagger with attractive valuations .However 2018 has been an year of the large caps the midcap counters faced laggard as whole and has underperformed during the period, considering it as a time wise correction we find value in few stocks the stocks so mentioned are reasonably priced and fundamentally strong. The stocks are expected to outperform the markets with a limited downside risk, stocks are picked randomly and not from a particular sector. Few are the midcap companies with good fundamentals which are of investment grade. 

AUTOMOTIVE AXLES

The Indian CV cycle has been on an upswing from July-2017, post the implementation of GST resulting in a strong show for auto ancillary manufacturers. Commercial Vehicle (CV) manufacturers in India are riding high with strong performance in Q1FY19. BSIV, GST woes seems to be fading away as the industry recorded over 51% growth by selling 2.55 lakh CVs in India as against 1.69 lakh units sold last year. The company has introduced Slipper type suspension after a study on Indian market having significant benefits over the current Bell crank suspension used at just 10% of additional cost. It has introduced new products that combine suspension system with axle assembly and is looking forward to introduce integrated system combining suspension, axles and brakes in the near future.  

                                                                                                                                            

Automotive axles is one of our favourite picks in midcap the company serves the commercial vehicle segment the company is a jewel to kalyani group and has been a major performer for the group. Established in 1981, Automotive Axles Limited (AAL) is a joint venture of Kalyani Group and Meritor Inc., USA (formally the automotive division of Rockwell International Corporation). With manufacturing facilities located at Mysore (Karnataka), Pantnagar (Uttarakhand) and Jamshedpur (Jharkhand), the company manufactures drive axles, nondrive axles, front steer axles, specialty & defence axles and drum & disc brakes.

AAL is a 35.52% each joint venture between Bharat Forge Ltd. (Flagship Company of the Punebased Kalyani Group) and Meritor Inc., USA, a leading supplier of axles for commercial vehicles.

Established in 1981, Automotive Axles Limited (AAL) is a joint venture of Kalyani Group and Meritor Inc., USA (formally the automotive division of Rockwell International Corporation).  With manufacturing facilities located at Mysore (Karnataka), Pantnagar (Uttarakhand) and Jamshedpur (Jharkhand), the company manufactures drive axles, non-drive axles, front steer axles, specialty & defence axles and drum & disc brakes.  It provides these products to the major domestic and global manufacturers of trucks & buses pertaining to segments such as light, medium & heavy commercial vehicles, military & off-highway vehicles, aftermarket and exports.

AAL  is  a  35.52%  each  joint  venture  between  Bharat  Forge  Ltd. (flagship company  of  the  Pune-based  Kalyani  Group)  and Meritor Inc., USA, a leading supplier of axles for commercial vehicles With manufacturing facilities located at Mysore, the company is currently one of the largest independent manufacturers of Rear  Drive  Axle  Assemblies  in  the  country.  With more than  30 years of axle producing experience and advanced gearing technology from Meritor HVS (India) Ltd, it has been manufacturing reliable & long life Light, Medium & Heavy duty Drive axles,  Front Steer axles, Non-Drive axles, axles for Defence  &  Off-Highway applications and Drum  &  Disc  Brakes.  The Marketing & Field Service Support is provided by Meritor HVS (India) Ltd.

The products manufactured  by  AAL are based on technology provided by the parent Meritor  Inc.,  USA. The technology transfer by Meritor Inc. is routed through its 51% subsidiary in India Meritor HVS (India) Limited (MHVSIL). MHVSIL is also responsible for customer sourcing, interaction, and marketing for AAL, with almost the entire sales of AAL routed through MHVSIL. MHVSIL is 51:49joint venture between Meritor International, USA, and Bharat Forge with Meritor holding a majority stake. AAL manufactures and sells axles, components, brake components and subassemblies to MHVSIL who in turn sells it to the end customer. AAL’s domestic OEM customers include Ashok Leyland Limited (ALL), Daimler India Commercial Vehicles Private Limited (DI), Man Trucks India Private Limited (MT), Mahindra & Mahindra Limited (M&M), Tata Motors Limited (TML), Volvo Eicher Commercial Vehicles Limited (VE), Asia Motor Works Limited (AMW), and Indian Army.

 

HOUSE VIEW: 

The company’s profit rose from of Rs 12.90 crore FY17 to Rs 29.00 crore FY18 Y-O-Y basis. The EBITDA rose from Rs19.54 crore FY17 to Rs44.17 crore FY18. The net sales rose from Rs 329.90 crores to Rs 473.79 crore. The company has current ‘DEBT FREE’ status.

The stock is trading at 20x of our FY20 earnings estimate, which we believe can easily expand considering the positives of the CV industry. We initiate our coverage on automotive axles with a target price of Rs 1820 at an EPS of 91 and a PEx of 20.

HOUSE VIEW: 

The company’s profit rose from of Rs 12.90 crore FY17 to Rs 29.00 crore FY18 Y-O-Y basis. The EBITDA rose from Rs19.54 crore FY17 to Rs44.17 crore FY18. The net sales rose from Rs 329.90 crores to Rs 473.79 crore. The company has current ‘DEBT FREE’ status.

The stock is trading at 20x of our FY20 earnings estimate, which we believe can easily expand considering the positives of the CV industry. We initiate our coverage on automotive axles with a target price of Rs 1820 at an EPS of 91 and a PEx of 20.

TECHNICAL ANALYSIS

PATTERN: BULLISH, CONSOLIDATION. 
The share is currently trading at Rs 1382. The share technically has support at around Rs 1100. The shares are currently in a consolidation phase. The 150 DMA (day moving average) is Rs 1403.72 and 200 DMA stands to be at 1426.30. The resistance level stands to be at Rs 1450.