Clutch Auto Multibaggers 30th-Jan-2006
sarv...@gmail.com
Clutch Auto
Nirmal Jain, India Infoline
Clutch Auto Ltd (CAL) is the largest supplier of clutches
to the commercial vehicle and tractor segment in India. It also caters
to the passenger vehicle and replacement demand and its clientele
includes Tata Motors, Ashok Leyland, Maruti Udyog, TAFE, Toyota, BEML,
Escort Tractors and State Transport Undertakings, among others. We
expect the company to witness a CAGR of 53.3% in sales and 83.6% in
profits between FY05 and FY08. The stock is trading at a P/E of
8x FY08E earnings and a P/BV of 1.5x, which does not fully factor in
the expected high growth. The EV/EBIDTA too, looks attractive at 7.1x
FY07E and 4.8x FY08E earnings. We recommend a BUY with a one-year
price target of Rs263, which represents an upside of 55.1%.
Clutch is a technology intensive business dominated by 6
players in the world, all operating either as joint ventures or as
technology partners or license arrangements. CAL is the only
standalone clutch company in the world, which is testimony to its
technology capability.
The company has ventured into the US truck market through
the aftermarket route making it the only offshore company to be able
to do so. It plans to be a niche player in the low volume, high
value added heavy-duty clutch segment for class 7 and 8 trucks. This
is because, the replacement demand for trucks in US, with a
population of nearly 4.5-5mn units, is nearly as high (250,000 units
pa) as the demand for new trucks.
CAL invested in technology, research and filed for patents
and trademarks for a number of products that it developed.
Today, the company is the only independent component company from
India with an independent patents and trademarks portfolio.
It has built many innovative products like the 'Cool Clutch',
'Whisper' and 'EZ N Lite' offering interchangeability unit-to-unit,
component-to-component with the same serviceability norms and tools.
While the domestic market will ensure steady revenues to the company,
we expect high growth to come in from the export initiatives taken by
the company. Presently, 25% of its revenues are on account of
exports. We expect this proportion to rise and contribute to around
50% of revenues in the next 3-4 years.
The company increased its capacity for clutch discs and
clutch cover assemblies by 122% and 200% respectively in FY05
to meet the growing demand for its products. The company
has set up a strong distribution network along with product
liability cover for overseas market. It already received orders
from Fleet Pride, a leading heavy-duty class parts distributor in
the US.