Banco Products (India) Ltd.: A Local Player With a Global Success Story

[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.]

Banco Products (India) Ltd. (BSE:500039), market capital Rs3020 million, is a global player in the business of cooling and sealing of engine parts, as OEM supplier to North America, Europe   and India. Caterpillar (CAT), John Deere (DE), Cummins (CMI), Yamaha (YAMFC), Honda (HMC), Indian Railways, Tata Motors (TTM) and Bajaj (NSE:BAJAJ-AUT) are some of its globally reputed clients.  The company earns over a third of revenue through exports. It has entered into technical as well as financial collaboration with Japan Metal Gaskets Co Ltd, Japan, which has taken up around 5% stake in the company. Its global acquisitions include Nederlandse Radiateuren Fabrick B V   of Netherlands, Lake Mineral (Mauritius) Ltd of Mauritius and Kilimanjaro Biochem Ltd, Tanzania.

This company was established in 1961, with the sole objective of designing and producing Radiators and Gaskets, primarily as an import substitution drive for the Indian OEM Industry, Railways run by the Government and Defense requirements. It was catering to all the major OEM’s by1980 and had a large diversified customer base. In 1987, Banco Products India Ltd became a public company, listed on the Indian Stock Exchanges. Promoter groups together maintained 67% share holding. Foreign promoters held 37% shares and the public holding was around 34%.

Certifications and Star Recognitions

In the 1990’s Banco Products began forays into global markets, primarily to Europe, and got Quality Management System Certification ISO-9002 for its manufacturing facilities. Later it got the ISO/TS 16949 Certification and also got recognized as an Export house by the Ministry of Commerce and Trade, Government of India. In early 2000, the company established a separate 100% Export Oriented Unit and eventually got recognition as Star Exporter by the Union Ministry of Commerce and Trade. In 2008, its Research & Development Center got recognition by the Department of Science, Government of India, for its unique achievements.

Manufacturing facilities

Bunco Products employ’s the state of art manufacturing technologies in its factories conforming to customers quality standards and in accordance with ISO 9001 / TS 16949:2002 system requirements. It has designed multiple production line layouts to be able to process both large quantity orders as well as smaller production orders, simultaneously, to be able to supply the order quantity, within the shortest lead time. All the manufacturing processes are designed to be eco-friendly. The philosophy of recycling is adopted at every stage. To ensure the system of total quality control, the company has invested in In-house R&D Center, Tool Room and Standards Room.

Jointing Gaskets & Sheets  

Banco Products is manufacturing gaskets, components and raw materials for every variety of industrial and automotive requirements. The Division is equipped with machines like German Troestar calenders, rubber mixers, solvent recovery plant, and laboratory for quality control of raw materials and to test the final sheets based on ASTM, DIN and BS standards. This division is ISO 9001 certified by Underwriters Laboratories Inc., USA and has a proven track record of development of innovative compressed fiber grades to meet objectives of specialized media sealing, sealing at elevated temperatures and general purpose economy grades based on newly developed fibers.

The Cooling System Manufacturing

Banco Products has the main heat exchanger manufacturing plants in Gujarat and two satellite facilities in Jamshedpur and Rudrapur. The total installed capacity is 2.1 million aluminum and copper-brass automotive heat exchangers and 4,000 large industrial heat exchangers per annum. The company produces almost a thousand varieties of Radiators, Charge Air Coolers as well as Oil Coolers. Manufacturing plants are equipped with latest SPM production equipment and sophisticated brazing machines with online controls and error control as well as monitoring systems. To ensure quality compliance, Banco Products produces every critical component like tubing, tanks, and gaskets and fabricated parts In-house.

Banco Products has a talented team of engineers involved in innovative development of cooling systems and sealing solutions and for difficult applications. The collaborator Japan Metal Gasket (JMG) Co, Japan helps in developing new cylinder head gaskets for the latest generation Euro 4 / Euro 5 Engines. The company has the quality assurance system in place, which helps it win the trust of the customers.

Financial Performance

The company has continuously added new customers to the list and developed new products, ensuring revenue growth year after year.  Revenue went up from Rs 1147 million in FY 2003-04 to Rs 5590 million in FY 2011 – 12. Being attached to automotive sector, it has also faced the pressure of recession as shown below:                                                                            

(Figures in million rupees)

Period Q3 ended on 31/12/2012 Q2 ended on 30/09/2012 Q1 ended on 30/06/2012 FY2011-12 ended on 31/03/2012
Revenue 1309 1188 1113 5596
Profit before depreciation, interest and tax 157 194 187 1162
depreciation -42.6 -41.5 -33.9 152.7
interest -22.4 -25.6 -14.1 -79.5

 

Net profit 62 90.1 99.0 724
Earnings per Share Rs(face value Rs 2) 0.87 1.27 1.39 10.13

 

Equity Rs 143 million, Book Value: Rs 44.2, CMP of Rs 41.2 it is below book value.

Based on the reports of recession and uncertainty of earnings, the market price of the scrip went down from 85 in April 2011 to a low of 35 during FY 2012 – 13. Currently it is quoted around Rs41.2. Based on projected EPS of 7 for FY 2012 – 13, PE happens to be 5.9.  Industry PE is 18.

We may notice that depreciation has gone up during Q2 and Q3, due to commissioning of new equipment, which would add to the bottom line during FY 2013-14. Interest costs too have gone up.

The company has high return on net worth of around 20 – 22 percent, compared to industry average of 12 to 14%.  It is a well managed company. Investors may watch out for signs of improvement during announcement of audited results. It will be a good buy during dips around the price of 35 -39. Down ward risks are not high.