Automobile Corporation of Goa (ACGL): Poised for Uptrend

[Ed. Note – This article does not meet our new editorial guidelines, nor does the company profiled meet our investment criteria. Both will be removed from the site in the future.]

Automobile Corporation of Goa Limited (A.C.G.L.) (BSE:505036), a midcap company (market capital Rs 1340 million), was jointly promoted by global auto major Tata Motors Ltd, (BSE:550570) and E.D.C. Ltd (Economic Corporation of Goa, Daman and Diu Ltd.) in 1980. The company has established a leadership position in the business of sheet metal pressings, assemblies, and bus and coach body manufacturing. Most of its revenue is earned from exports.

In 1987, the company entered into technical collaboration agreement with Fuji Heavy Industries of Japan (OTC:FUJHY), manufacturers of  Subaru car, for manufacture of various chassis mounted coaches. In 1995, another collaboration agreement was signed with FHI Ltd., for building bodies of Monocogue buses. The company is located in Goa state, a well known tourist destination. This was one of the earliest manufacturing facilities set up in the state. The state of art manufacturing facilities are located in Honda village of Sattari in Goa, Bhuimpal village  in Sattari, and Jejuri in Pune, close to customer’s (Tata Motors) manufacturing facility.

As the facility is  located closer to the main customer’s premises, it ensures fulfillment of Just in Time (JIT) supplies for ensuring lean and cost effective manufacturing. Right from the inception, ACGL embraced Tata ethos of Innovation, Quality, Reliability, Productivity and Safety. From 1982, the company  is a major supplier of pressings, assemblies, and components to Pune facility of Tata Motors. It has sheet metal workshops and latest tool room facilities equipped with high capacity mechanical and hydraulic presses, ensuring consistent quality output.

Production facilities with latest technology, continuous training for skill up gradation and good management support for improvements has ensured the design, manufacture and delivery of world class products and services at ACGL. Inspired by the leadership of Tata group, the company is driven by the passion for business excellence. It continuously improves Reliability, Quality, Safety, Health and Environment in all the business processes with emphasis on   employee involvement and learning.

Bus body building and coach building

The bus body manufacturers assemble the body of the bus onto the chassis. Thd design involves some major considerations such as the usage, types of seats and capacity, comfort level, staircase design in case of double-deckers and number of doors and their position.

Bodies is manufactured for three specific usage categoriess: Bus, Coach, or Dual-purpose vehicle. The normal Bus body is usually designed for frequent short trips, with general travel vehicle features. Coach body design is for comfortable long distance travels, with a large luggage space, as well as under-floor lockers. Modern amenities  include music, television and toilets. A dual purpose vehicle body design is a bus body with coach style  comfortable seats.

“ACGL buses and coaches are designed for maximum safety of passengers, so that even during head-on collisions,  impact does not reach passenger saloon. Even during a roll over, the bus roof is protected from crushing and collapsing……………. ” says the company website.

The Recession

The automobile industry all over the world is worst hit by the recession. This applies to Tata Motors as well as to ACGL. Other bus body builders too are hit by this worldwide phenomenon. There are a large number of players in the automobile body building market. Export markets are worst hit. However ACGL has managed to make profits even during tough times and it has managed to pay dividend. Cost cutting measures and improved productivity have helped the company.

Company has invested in a modern  manufacturing facility at Dharwar in Karnataka, and a shower test facility for buses and new pretreatment plant at Jejury in Pune.  It has also developed prototypes and new designs for new concept vehicles and ambulances, and armored vehicles. In view of recession in export markets, additional focus is placed on domestic market.

Financial results of the ACGL are shown below: (figures in million Rupees)

Period Q4  FY2012 -1331st March 2013 Q3 FY 2012 -1331st Dec 2012 AnnualFY 2012 -13 AnnualFY 2011 -12
Income 690.4 658.7 2720 3327.3
Profit before tax 73.6 46.3 234 367.7
Profit after tax 48.2 31.3 156.3 242
Earnings per shareRs(Face value Rs10) 7.52 4.89 24.35 38.66

Equity: Rs64.5 million, face value: Rs 10, book value: Rs 246.68, CMP: Rs210, PEratio: 8.8, Dividend: 125%

52 week high 335 low 191

Investment perspective

Share price hovering around  Rs 415  in April, 2011 ( BSE SENSEX 19800), continuously declined to  316, in March 2012(BSE SENSEX  18040), on the basis of  market sentiments, reports of recession and lower profits, and  later declined to all time low of 193 on 05/04/2013. Presently it is priced 210, discounting FY 12 -13 EPS of 24.35, around 8.8 times against the Industry average PE ratio of 18. It is quoted below its book value.

Based on latest quarterly EPS of 7.52, EPS for FY 2013-14 is projected to be Rs 30 – 32. Looking at the investment in new facilities at Dharwar, and  good management of Tatas(Tatas hold 46.4% and EDC holds 6.3% equity), the share appears to be a good buy for long term. The shares hit by recession at present price level would give a good return in a year or two, when signs of strong recovery of economy show up, and downward risk are not very high now. It can definitely be accumulated on declines at 190 – 200 level.