Bharat Gears Limited - Geared for Life

CMP = 189

Bharat Gears Limited (BGL) is incorporated in 1971. BGL is one of the world leaders in gears technology and  largest gear manufacturer in India. Company is operating with three business divisions  Gears, Automotive components and Furnaces.

BGL is internationally reputed for its cutting edge technology, established quality processes, and capabilities developed over the years. BGL has three modern manufacturing facilities located at Mumbra near Mumbai, Faridabad near Delhi and Lonand near Pune. 

All three plants are certified with quality standard ISO/ TS 16949, In addition, the Faridabad and Lonand plants are certified under ISO/14001 and OHSAS 18001 by BVC.

Gear Manufacturing 

Bharat Gears Limited manufactures and supplies automotive gears and parts to original equipment manufacturers of agricultural machinery, commercial vehicles, construction and mining equipment in India. It offers automotive products  for tractors, commercial vehicles, buses, utility vehicles and off-highway vehicles. The products includes bevel, straight bevel, ring gears, pinions, transmission gears, propeller shafts, differential gears, and complete automotive transmissions, gearbox sub-assemblies and differential assemblies.

Company supplying 80% of its gears to OEM’s and  selling the rest in replacement market and out of the total sales about 90% is coming from Gear segment.

BGL entered into the technical collaboration with ZF Friedrichshafen, AG, Germany  for manufacturing Gearboxes

Furnaces

Taking advantage of the core competency in heat treatment technology, BGL started constructing furnaces in 1978, initially for captive use than later it started commercial production of batch and continuous heat treating furnaces.

BGL entered into the technical collaboration with  AFC-Holcroft, Michigan, U.S.A. for manufacturing Furnaces. The technology and experience in furnace building coupled with expertise in commissioning, operation and process control give an edge in covering all aspects of heat-treating equipment to meet the customer's requirements to maintain in service under Indian conditions.

BGL Automotive Components

The automotive components division of BGL designs, manufacture, tests, and supply wide range of auto-components like Automotive Clutch and components, Turbochargers and components, Driveline Products, Axle Shafts , Fly Wheel Assemblies & Rings, Propeller Shaft components , U-J Cross , Steering Components, Differential Cages, Steel Wheel Rims among many others.

Customers

BGL's customer list includes almost all the players in the automobile industry in the tractors, trucks and buses and utility vehicle segments. The main  OEMs  customers in the tractor and commercial vehicle (CV) industry and include Tata Motors, Mahindra & Mahindra, Ashok Leyland, TAFE, Escorts, VST Tillers & Tractors, John Deere, New Holland Tractors, Carraro India, JCB among others. For several of the players, BGL is the single source supplier for gears.

BGL is a major global supplier of automotive gears and heat treatment furnaces. The company exports its products primarily to the United States, Europe, Mexico and Asia. For export market,  BGL's clients include Carraro Spa Italy, JDCW-USA, TMA-USA, DANA Corp.-USA and Tech Development.

Investment Rationale

With the strong growth momentum in economy, automobile sector witnessed higher demand from all the segments. Indian economic growth projected around 7 - 8 % in the near future, pick-up in the auto and auto ancillary industry is imminent in both domestically as well as internationally. According to IBEF, automobile industry accounts for 7.1% of the country’s Gross Domestic Product (GDP). With clients spread across India as well as European, American, Mexican and Asian markets, BGL is well positioned to cater to this opportunity

https://www.ibef.org/download/Auto-Components-Report-Jun-2018.pdf

https://www.strategyand.pwc.com/media/file/Strategyand-India-Automotive-Market-2020.pdf

Agriculture is the backbone of the economy and government is taking several measures to increase the income of farmers, It is by improving agricultural infrastructure, farm equipment, expansion of crop insurance coverage and improvement in land productivity via soil health cards. Tractor applications are now extending to other farming activities such as cultivation, seeding, inter-cultivation, weeding and spraying. Increased multi-cropping and commercial usage of tractors is propelling tractor demand.

The Tractor industry in India is considered as a barometer of the rural economy. It accounts for about one-third of the global production of tractors and it is growing at good pace above 10% per year. It gives huge growth potential for BGL. 

http://www.autopunditz.com/autopedia/tractor-sales-statistics-india/

The Government is relentlessly focused on building world-class infrastructure of transport networks comprising roads, highways, bridges, ports, airports etc. The Indian construction equipment industry holds immense potential due to the large demographic base and the infrastructure gap within the country.  This is expected to create a huge demand for construction equipment, the manufacture of which is expected to grow both in volume as well as in value terms. It translates into greater demand for BGL products because construction equipment manufacturers form a significant portion of BGL clients. 

BGL lowered the cost of production by use of effective tooling and production method. Further, with close monitoring of inventory levels, it minimised blockage of cash. Company has worked towards improving productivity by ensuring that all facilities remained state-of-the art, through an upgradation of  technology by adding new gear cutting, grinding machines. BGL also undertook a considerable level of retrofitting and reconditioning of old conventional machines to bring them up to date without addition of any major cost. 

BGL is dedicated to maintaining the highest quality products, the best customer service, and the safest operating conditions in the industry.

Conclusion

Bharat Gear is well established name in automobile industry with wide range of products and customer base. We can expect that company will maintain its current momentum in future and  all above mentioned factors are very positive for this small cap company. It  is very good investment opportunity at cmp 189 for both short  term and long term ( 1 year to 4 years ). It can be bought + / - 10% from cmp with 10-20 % of portfolio allocation.