Clutch Auto

Buy Clutch Auto at CMP of Rs 114. For details pls read the analysis below.

1) The productivity levels in the company has increased by more than
4 times in the last 1.5 yrs which has helped the company to get back
on track. This has been possible as the company has started following
Japanese system of productivity mgmt (A Japanese delegation had
visited the company to assess the productivity)

2) The company is now focusing on the US mkts where Eaton has 95% mkt
share in the OEM clutch mkt & 70 - 75% in the replacement mkt (others
being Daikin & ZF). So they are trying to grab a pie of the lucrative
North American Mkt by pushing their own Brand !! called Road Raider
against Eaton's Road Ranger. I don't know which other Indian Auto
Anci co. has been able to push its own brand in US.

Fleet Pride is one of the biggest distributors of clutches in US &
the company has bagged a 60mn $ order from that which suggests the
quality of their product.

3) Last four quarters were excellent for the company. Sales and Net
profit both jumped remarkably. In fact NP was 2.75 million to 23.77
million. that's a jump of over 10 times on QOQ basis.

4) Company has significant debt of Rs 60.13 cr compared to Rs 37.36
cr of Total Shareholder's Funds. Their profitability may get affected
due to this. Secondly, promoters are continuously selling the stack.
Their stack has come down to 26.21% in June (05) ended quarter.
Previously it was 31.79, 40.87, 37.83, 37.83% respectively. This is
not a healthy sign. On YOY basis also they reduced the stake from
37.83% to 31.79%.

Analysis: Promoters have been selling bcoz they are repaying the high
cost debt. So they are pumping back the money in the company by way
of debt. Most of the selling they have already done maybe Anuj (Vijay
Mehta's Son) is selling few more shares but mostly their selling
activity is over & they have pumped the money back into the company.

5) Very old and established player (incorporated in 1971). In fact a
leader in it's segment.

6) India's largest exporter of clutches, exports to 40 countries, 85%
to Americas.


As far as valuation goes rest assured it is going cheap. I am
expecting the price to double in one years time. Pls share your
opinion.

Cheers,
Niteen Dharmawat