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.
| Headquarter | Tamil Nadu, India. |
| Sector | Auto 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) |
| Chairman | Mr. L Ramkumar (Jun 2018 – Present) |
Board of Committees: Shanthi Gears Ltd.
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:
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-16 | Mar-17 | Mar-18 | Mar-19 | Mar-20 | Mar-21 | |
| Revenue from Operations | 164 | 183 | 214 | 242 | 242 | 216 |
| Expenses | 134 | 147 | 177 | 200 | 208 | 189 |
| Operating Profit | 31 | 36 | 37 | 41 | 35 | 27 |
| Profit before tax | 23 | 28 | 33 | 42 | 33 | 26 |
| Net Profit | 18 | 23 | 29 | 33 | 25 | 20 |
| EPS (in Rs.) | 2.17 | 2.75 | 3.50 | 4.08 | 3.28 | 2.63 |
Key Pointers:
- 95% of the Revenue comes from the Sale of Products whereas just around 2% is of Sale of Services.
- Just around 8% of the revenue is from Exports while the rest are Domestic sales.
- Almost 50% of the company’s expense is material cost and around 20% is employee cost.
- 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-16 | Mar-17 | Mar-18 | Mar-19 | Mar-20 | Mar-21 | |
| Share Capital | 8 | 8 | 8 | 8 | 8 | 8 |
| Reserves | 276 | 298 | 310 | 294 | 221 | 229 |
| Borrowings | 0 | 0 | 0 | 0 | 0 | 0 |
| Other Liabilities | 34 | 41 | 42 | 51 | 54 | 88 |
| Total Liabilities | 318 | 348 | 360 | 353 | 283 | 325 |
| Fixed Assets | 66 | 65 | 57 | 59 | 60 | 74 |
| Investments | 63 | 70 | 114 | 124 | 79 | 47 |
| Other Assets | 189 | 212 | 189 | 170 | 138 | 205 |
| Cash Equivalents | 2 | 2 | 1 | 20 | 2 | 3 |
| Loans n Advances | 68 | 83 | 68 | 18 | 27 | 69 |
| Total Assets | 318 | 348 | 360 | 353 | 283 | 325 |
Shanthi Gears Ltd.: Cash Flow
Standalone Cash Flow (in Rs. Crores)
| Mar-16 | Mar-17 | Mar-18 | Mar-19 | Mar-20 | Mar-21 | |
| Cash from Operating Activity | 46 | 14 | 42 | 27 | 56 | 33 |
| Profit from operations | 33 | 37 | 38 | 42 | 37 | 30 |
| Working capital changes | 22 | -17 | 10 | -5 | 26 | 7 |
| Other operating items | 0 | 0 | 0 | 0 | 0 | 0 |
| Direct taxes | -9 | -6 | -6 | -10 | -8 | -5 |
| Cash from Investing Activity | -43 | -13 | -26 | 40 | 24 | -20 |
| Fixed assets purchased | -11 | -6 | -6 | -12 | -18 | -15 |
| Investment Purchases | -40 | -22 | -115 | -193 | -83 | -104 |
| Investments sold | 0 | 8 | 85 | 231 | 121 | 94 |
| Cash from Financing Activity | -5 | 0 | -17 | -49 | -98 | -12 |
| Dividend Paid | -4 | 0 | -14 | -41 | -23 | -12 |
| Proceeds from borrowings | 0 | 0 | 0 | 0 | 0 | 0 |
| Net Cash Flow | -2 | 1 | -1 | 18 | -18 | 1 |
Financial Ratios:
Stock Price:
| 1. Current Price | ₹ 207 |
| 2. Market Cap | ₹ 1,590 Cr |
| 3. Yearly Fluctuation | ₹ 128 – 219 |
Ratios:
| P/E | ROCE | ROE | Net Margin | Rev Growth | Dividend Yield | |
| Shanthi Gears Ltd | 40.42 | 11.30% | 8.66% | 8.98% | -11.04% | 1.18% |
| L G Balakrishnan & Bros Ltd | 8.14 | 21.53% | 16.76% | 8.21% | 4.29% | 3.27% |
| RACL Geartech Ltd | 25.44 | 19.87% | 24.32% | 11.31% | -4.11% | 0.41% |
Strength:
- Shanthi Gears is the leading gear manufacturer in India and is the preferred name for some of the industry’s biggest players.
- Their Board of Directors is well experienced in this business segment and are associated with the company for a long time.
- They are a completely debt-free company.
- The company has been maintaining a healthy dividend payout.
Weakness:
- The company has been registering poor profit growth of just 4.5% over the past 5 years and has below par revenue growth.
- Their Balance Sheet and Cash Flow are not as appealing as their peers.
- The financial ratios don’t seem good as the company reported ROE and ROCE and negative revenue growth.
- Trading at a high P/E ratio of around 40.
- Insufficient use of shareholders funds – ROE, ROCE, ROA continuously declined in the last 2 years.
Opportunity:
- 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:
- Both the FIIs & DIIs have trimmed their holding in the company.
- The company has been continuously registering poor EPS.
For more information, reach us at [email protected]
Team, MyGoalMySip.
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