Ahmednagar Forgings: A Value Buy

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Ahmednagar Forgings Ltd (BSE:513335) is the largest forging manufacturer in the small and medium component segment. The company is engaged in the manufacture of high precision closed die steel forgings and auto components for the automotive, defense and railway sectors. The major customers of the company include Fairfield Atlas (BSE:FAIRFIELD), Cummins (CMI), King Automotive Systems Ltd, Coventry, Letchworth, Zelter GmbH and Hennef. The company specializes in products like connecting rods and caps, crankshafts and camshafts, steering levers, gear shifter forks, sector gears and shafts, front impact beams drive shafts, spindlers, hubs and flanges, transmission components, steering parts, pistons, propeller fork shafts, stub-axles, front axle beams, front and rear axle shafts. Their manufacturing facilities are located at Ahmednagar, Chakan, Kurli in Maharashtra and Solan in Himachal Pradesh. Ahmednagar Forgings Ltd was incorporated in the year 1977.

The company is growing rapidly as visible in the table. The company is maintaining 30% growth.  The robust growth enables company to accumulated reserve. Which support for future safety and possibility of liberal payout in future. The book value of a share stood at Rs 200 which expected to be in range 225-230 a share in this year ending on June 2013.

In the latest quarterly result announced on May 14, 2013, Ahmednagar Forgings has reported sales of Rs 3301.8 million and a net profit of Rs 380.2 million for the quarter ended Mar ’13 the same for the quarter ended Mar 2012 was Rs 3300.3 million and Rs 322.3 million respectively.

Table: Annul figure in Rs Crore.

Year Ending Jun ’12 Chg % Jun ’11 Chg % Jun ’10 Chg % Jun ’09 Chg % Jun ’08
Total Income 1,229.15 30.31 943.28 40.99 669.06 31.55 508.6 (26.60) 692.93
Operating Profit 293.13 18.57 247.23 48.12 166.91 52.50 109.45 (14.84) 128.53
Net Profit 120.87 11.75 108.16 68.76 64.09 78.42 35.92 (44.89) 65.18
EPS(Rs) 32.89 11.76 29.43 68.75 17.44 69.48 10.29 (44.86) 18.66
Book Value (Rs) 200.9 18.76 169.17 19.08 142.07 8.28 131.21 9.82 119.48

(Source: moneycontrol )

In March this year the Board of Directors of the Company has decided to acquire the First Forge Limited. First Forge is engaged in the business of manufacturing of forging components for auto and non-auto industry.

Promoters have increased their stack to 59.88% during quarter ending March 2013 from 54.96% in December 3013. Amtek Auto Ltd the sole promoting company is constantly increasing stack in the company since year 2009. The stack is now at 67.77% after a bulk purchase in May 2013 form open market.

The Indian forging industry is broadly classified into four sectors – large, medium, small and tiny. A major portion of this industry is made up of small and medium units / enterprises (SMEs). The industry is comprised of 200 organized and 1000 un-organized forging units in the country which are mainly spread across Pune, Chennai, Delhi and Ludhiana. Reports suggest that about 85% of the production meets domestic demand while balance gets export.

The forging industry depends heavily on the automobile industry which accounts for roughly 70% of the total forging production while the balance is sold to non-auto companies like valves, power sector, earth moving, mining & oil field equipment, engineering, capital goods, etc. Steel forms a major part of input of the forging industry.

The stock is currently trading around Rs 106 with the market cap of Rs 3.96 billion. The stock looks attractive at price to earnings ratio of 3 compare to industry average of 12. It pays Rs 1 annual dividend yielding 0.94%. With stable business and consistence performance the company is recommended for value buyer.