GNA Axles Ltd. share price target

GNA Axles is amongst the leading manufacturers of rear axle shafts used in on-highway and off-highway vehicular segments in India. GNA Axles commands 50% market share in the domestic rear axle shafts and is currently expanding its capacity to fulfill the increasing demand for rear axles.

Incorporated in 1993, G N A Axles Ltd is Punjab based manufacturer of rear axle shafts, other shafts and spindles used in on-highway and off-highway vehicular segments. GNAAL mainly manufactures and sells auto components for the fourwheeler industry. GNAAL has an annual installed capacity of 2.3mm for rear axle shafts, 0.3mm for spindles, and 0.4mm for other shafts. GAAL has a broad customer base in India and overseas. Its biggest customers include M&M;, John Deere, TAFE , Automotive Axles Limited, Meritor HVS AB and Dana Limited. GNA has two manufacturing plants in districts Hoshiarpur and Kapurthala in Punjab....

GNA Axles (GNA) was established in 1993. The company is among the leading manufacturers of rear axles shafts used in on-highway & offhighway vehicular segments in India. Apart from rear axle shaft (accounts for 85% of revenue), it also manufactures other shafts (6% of revenue) & spindles (9% of revenue). The company has two manufacturing facilities both located in Punjab with a total annual capacity of 2.30 million (mn) rear axle shafts, 0.4 mn other shafts and 0.3 mn spindles. In terms of revenue bifurcation, as of FY16, domestic: export mix was at 45: 55, respectively. Over the years, GNA has focused more on the export market where its revenue contribution has increased from 35% in FY12 to 55% in FY16. The company exports rear axle shafts globally with North America, Europe accounting for 45%, 33% of its export revenue, respectively. GNA has a strong relationship with some global OEMs & tier-1 suppliers. It plans to raise ~| 130 crore, of which | 80 crore would be used for purchasing new plant & machinery & | 35 crore for its working capital requirement. Over FY12-16, revenue, EBITDA, PAT registered a CAGR of 6%, 12%, 11%, respectively. On the balance sheet front, as of FY16, its net debt to equity was at 0.8x with RoE & RoCE at 18.8% & 22.6%, respectively.

Valuation : At the upper price band of | 207, the stock is available at 17x on FY16 post issue diluted EPS of | 12.1. We believe GNA has a decent business model (strong customer base & diversified revenue) and financial performance. However, we believe the company is also fairly valued at the IPO price.

GNA Axles Ltd (GNAAL) is a Punjab based manufacturer of rear axle shafts, other shafts and spindles used in on-highway vehicular (including LCVs, MCVs, HCVs, bus etc) and off-highway vehicular (agricultural tractors and machinery, forestry, construction equipment, mining etc) segments. In FY2016, the company’s revenue mix was constituted by domestic and export segments in the proportion of ~45% and ~55% respectively. GNAAL’s customers include OEMs such as Mahindra & Mahindra, John Deere, Tractors and Farm Equipment (TAFE) and tier 1 suppliers to OEMs such as Automotive Axles, Meritor HVS AB and Dana. The company has two manufacturing facilities, both of which are located in Punjab. It exports products to various countries across America, Europe and Asia Pacific.

Outlook & Valuation: In terms of valuations, the pre-issue P/E works out to 12.1x its FY2016 earnings (at the upper end of the issue price band) which is lower compared to its peers (Talbros Engineering is trading at 19.5x its FY2016 earnings). Also, GNAAL has a better margin and ROE profile than its comparable peers. Considering high export revenue composition, expected recovery in domestic sales and the company’s market leadership position in the tractor segment; plus, given the relatively attractive valuation proposition, recommend a SUBSCRIBE on the issue.

Incorporated 1993, G N AAxles Ltd is India based manufacturers of rear axle shafts, other shafts and spindles used in on-highway and off-highway vehicular segments in India. The company is engaged in manufactures and sells auto components for the four-wheeler industry. It manufactures and supplies a range of rear axle shafts, other shafts, and spindles for the onhighway segment vehicles, including light commercial vehicles, medium commercial vehicles, and heavy commercial vehicles, as well as other transport vehicles, such as buses. GNA Axles exports their products to various countries, including the United States, Sweden, Turkey, Brazil, Italy, Germany, Spain, Mexico, Japan, the United Kingdom, France, China, and Australia. They have two manufacturing facilities: Unit I located in village Mehtiana, district Hoshiarpur, Punjab and Unit II located at village Gulabgarh Jattan, district Kapurthala, Punjab.

Valuation : Considering the P/E valuation on the upper end of the price band of Rs. 207, the stock is priced at pre issue P/E of 12.11x on its FY16 EPS of Rs. 17.10. Post issue, the stock is priced at a P/E of 17.13 x on its EPS of Rs. 12.08. Looking at the P/B ratio at Rs. 207 the stock is priced at P/B ratio of 2.27x on the pre issue book value of Rs.91.18 and on the post issue book value of Rs. 125.17 the P/B comes out to 1.65x. On the lower end of the price band of Rs.205 the stock is priced at pre issue P/E of 11.99x on its FY16 EPS of Rs. 17.10.Post issue, the stock is priced at a P/E of 16.97x on its EPS of Rs. 12.08. Looking at the P/B ratio at Rs. 205, the stock is priced at P/B ratio of 2.25x on the pre issue book value of Rs. 91.18 and on the post issue book value of Rs. 125.17 , the P/B comes out to 1.64x.