Gujarat Automotive Gears Ltd. – A Fair Study
In this post, we can learn the Potential of Gujarat Automotive Gears Ltd. as a Multibagger. This is a small cap company & having peculiarities of growing sales & profits.
About: Gujarat Automotive Gears Limited (GAGL) was established in 1973 at Baroda, India for the manufacture of Auto and Tractor components. Marketed under the brand names of KAG, these components serve the aftermarket and OEM’s in India. Two decades of experience, an established network and a synergistic approach to design and execution, ensures quality products and components from concept to completion.
Warren Buffett 9 Criteria of Value Investing
Let us apply our usual tool for finding the multi-bagger properties.
Check list Template to Analyze Stocks
|History of Consistently Increasing Sales, Earnings & Cash Flow|
|Durable Competitive Advantage||There are other large cap players with the same business. Our company may evolve to achieve Durable Competitive Advantage in future.|
|Future Growth Drivers||The auto & tractor industry is to witness more growth due to mechanization of human labors activities.|
|Conservative Debt (long term debt < 3 Net Profit)||Current Liabilities 6 Crores. Latest Net Profit is 6 Crores. So we are good.|
|Return on Equity must be Above Average||Return on Equity should be above 20%. Our company have 38% and on average 45%.|
|Low CAPEX required to maintain current operations||Company is required to invest in Plant & Machinery on a long term basis.|
|Management is holding / buying the stock||Promoter Holdings is 70%, it is a really strong holding from the management side.|
|Price is Under Valued (< intrinsic value)||Based on the Doubling EPS growth for last 3 years, the Intrinsic Value falls around Rs. 2000. Current Market Price is Rs. 884.|
|Stock Price is consolidating||
Luckily, it is consolidating in the range of Rs. 850
Considering the Growth to be continuing for next 5-10 years, the stock should provide 10-20 times returns. Certainly, there are risks associated, but we are Diversifying our Investments to cope with risk.
Company is having Multibagger properties, as it is in Small Cap (< 100 crore capitalization) we recommend less than 50% weight age of the allocation.