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Shanthi Gears Ltd.: Should you invest?

May 13, 2022
in Stocks
shanthi

About the company: Shanthi Gears Ltd.

Shanthi Gears, a subsidiary of Tube Investments of India, is a pioneer in gear manufacturing and is currently ranked among India’s top gear manufacturers. They are in the business of designing, manufacturing, and supplying gears and gearboxes, as well as providing specialized gear reconditioning services, and have been the preferred name for some of the industry’s biggest names for over four decades. The company also serves as engineering design consultants, advisors and providers of technical know-how and applied technology, solution providers and business process outsourcers in the fields of engineering design and drawing, software programming, and so on.

The company’s rich engineering heritage dates back to 1960, when P. Subramanian, an engineer himself, laid the groundwork with a modest small gear manufacturing unit in the town of Coimbatore. Shanthi Engineering and Trading Company, the forerunner to Shanthi Gears, began with simpler processes like milling and grew steadily under visionary leadership and with the hard work of its employees to become a private limited company—Shanthi Gear Products (P) limited—in 1972.

HeadquarterTamil Nadu, India.
SectorAuto Ancillaries

Area of Operation:

Shanthi offers a wide range of Standard and Custom Gearboxes for power transmission needs. The product in this series includes:

  • Worm Gear Box
  • Helical & Bevel Helical Gear Box
  • Geared Motor
  • Custom-Built Gear Box
  • Mill Gear Box
  • Open Gearing
  • Products for Textile Industries
  • CNC Machine Tools
MD & CEO Mr. M Karunakaran (Feb 2019 – Present)
ChairmanMr. L Ramkumar (Jun 2018 – Present)

Board of Committees: Shanthi Gears Ltd.

shanthi
Board of Committees
Board of Committees

Subsidiaries:

The Company has no subsidiaries.

Competitors:

  • L G Balakrishnan & Bros Ltd (Market Cap of Rs. 1,952 Cr )
  • RACL Geartech Ltd (Market cap of Rs.669 Cr)

Shareholding Pattern:

Shareholding Pattern

Top Shareholdings:

  • Tube Investments Of India Limited – 70.46%
  • Pacific Assets Trust Plc – 2.90%
  • Nimesh Sumatilal – 1.27%

Industry Overview:

The global industrial gearbox market was valued at USD 24.90 billion in 2020 and is expected to reach USD 32.43 billion by 2027, growing at a CAGR of 4.20 percent between 2022 and 2027. Due to increasing demand for gearboxes in various applications such as the manufacturing sector, power industry, and so on, the Asia-Pacific region accounted for a significant share of the industrial gearbox market in 2020. Countries such as India, China, Japan, Korea, and Australia are among the region’s major contributors.

With India’s population and income levels increasing, industries such as FMCG, Steel, Cement, Power, Infrastructure, and Mining are renovating and expanding their manufacturing facilities to meet public demand. The estimated market size of industrial gearboxes in India is 2,000 crores, with a growth rate of 2,600 crores over the next four years. In addition, India is focusing on renewable energy sources to generate energy, with the goal of achieving 40% of its energy from non-fossil sources by 2030, creating an opportunity for the windmill segment.

Shanthi Gears Ltd.: Profit and Loss Statement

Consolidated P&L (in Rs. Crores):

 Mar-16Mar-17Mar-18Mar-19Mar-20Mar-21
Revenue from Operations164183214242242216
Expenses134147177200208189
Operating Profit313637413527
Profit before tax232833423326
Net Profit182329332520
EPS (in Rs.)2.172.753.504.083.282.63
Consolidated P&L

Key Pointers:

  1. 95% of the Revenue comes from the Sale of Products whereas just around 2% is of Sale of Services.
  2. Just around 8% of the revenue is from Exports while the rest are Domestic sales.
  3. Almost 50% of the company’s expense is material cost and around 20% is employee cost.
  4. The last two FYs have deteriorated the company’s as well as the industry’s financials due to the global pandemic.

Shanthi Gears Ltd.: Balance Sheet

Standalone Balance Sheet (in Rs. Crores)

 Mar-16Mar-17Mar-18Mar-19Mar-20Mar-21
Share Capital888888
Reserves276298310294221229
Borrowings000000
Other Liabilities344142515488
Total Liabilities318348360353283325
Fixed Assets666557596074
Investments63701141247947
Other Assets 189212189170138205
Cash Equivalents2212023
Loans n Advances688368182769
Total Assets318348360353283325
Standalone Balance Sheet (in Rs. Crores)

Shanthi Gears Ltd.: Cash Flow

Standalone Cash Flow (in Rs. Crores)

 Mar-16Mar-17Mar-18Mar-19Mar-20Mar-21
Cash from Operating Activity461442275633
Profit from operations333738423730
Working capital changes22-1710-5267
Other operating items000000
Direct taxes-9-6-6-10-8-5
Cash from Investing Activity-43-13-264024-20
Fixed assets purchased-11-6-6-12-18-15
Investment Purchases-40-22-115-193-83-104
Investments sold088523112194
Cash from Financing Activity-50-17-49-98-12
Dividend Paid-40-14-41-23-12
Proceeds from borrowings000000
Net Cash Flow-21-118-181
Standalone Cash Flow (in Rs. Crores)

Financial Ratios:

Stock Price:

1. Current Price₹ 207
2. Market Cap₹ 1,590 Cr
3. Yearly Fluctuation₹ 128 – 219
Stock Price

Ratios:

 P/EROCEROENet Margin Rev GrowthDividend Yield
Shanthi Gears Ltd40.4211.30%8.66%8.98%-11.04%1.18%
L G Balakrishnan & Bros Ltd8.1421.53%16.76%8.21%4.29%3.27%
RACL Geartech Ltd25.4419.87%24.32%11.31%-4.11%0.41%

Strength:

  1. Shanthi Gears is the leading gear manufacturer in India and is the preferred name for some of the industry’s biggest players.
  2. Their Board of Directors is well experienced in this business segment and are associated with the company for a long time.
  3. They are a completely debt-free company.
  4. The company has been maintaining a healthy dividend payout.

Weakness:

  1. The company has been registering poor profit growth of just 4.5% over the past 5 years and has below par revenue growth.
  2. Their Balance Sheet and Cash Flow are not as appealing as their peers.
  3. The financial ratios don’t seem good as the company reported ROE and ROCE and negative revenue growth.
  4. Trading at a high P/E ratio of around 40.
  5. Insufficient use of shareholders funds – ROE, ROCE, ROA continuously declined in the last 2 years.

Opportunity:

  1. The Indian industrial gearbox market is expected to grow at a good pace as India is one of the major global contributors in this segment.

Threat:

  1. Both the FIIs & DIIs have trimmed their holding in the company.
  2. The company has been continuously registering poor EPS.

For more information, reach us at [email protected]

Team, MyGoalMySip.

Read Next: PW Insider: April 2022 Edition

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MyGoalMySip is an Online Mutual fund investment platform powered by Prudent Wealth. As an investor, it might be hard to find the perfect investment opportunity; therefore, we’re here to help you make an informed decision.

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    About Us

    MyGoalMySip is an Online Mutual fund investment platform powered by Prudent Wealth. As an investor, it might be hard to find the perfect investment opportunity; therefore, we’re here to help you make an informed decision.

    Our goal is to educate people and make them financially literate, and at the same time guide you in your investment journey, in short MyGoalMySip is your investment buddy.

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